Taxation is a vast subject and should be dealt with care. There are many ways where you can save tax by doing a few transactions. These transactions are considered by the Income Tax Department and help in saving tax for the common man. With every rule that applies to a tax payment; there is a relief given which can be availed by the individual and save tax as much possible. What about the gifts that are given by a family member? Should that also be taxable? Let us understand the implications of a tax on a gift deed.
What is a gift deed?
It is a legal document which records all the information of the donor and done along with the amount that is being gifted. This way the amount can be tax-free for both the parties and cannot be claimed by any other family member in case of disputes as well.
Money in any transaction when comes in your bank account has a legal implication of tax and can be a charge to you. You should know all the pros and cons of this transaction so that you are well aware of saving tax or when you need to make a payment.
Reasons for money being deposited into the bank account
•Loan taken from friends for personal necessities.
•The amount deposited by parents or family members for down payment of your new home.
•Friends deposit money to make a payment from your account.
•You have swiped your credit card for a friend and he returned it by transferring the amount into your bank account.
All such transactions are a kind of income for you as it has come into your bank account and the source is not defined as tax-free. So let us know about the rules and regulations of gift deed and its implications on tax.
Amounts deposited by relatives
The income tax laws have defined that when any amount is deposited into your bank account by a relative, it is not charged with tax. However, the relatives should be as per the definition of the income tax act. These relatives can be your spouse, brother or sister, brother or sister of the spouse, parents or spouse’s parents including your parent’s brothers and sisters. But it is better if you get the tax deed prepared for any kind of transfer; as it will help you to be safe from the scrutiny that the Income Tax Department may do.
No tax on a particular amount
As per the Income Tax laws; an amount not exceeding above Rs. 50,000/- is tax-free and you or the depositor does not need to pay tax on such transactions. But if the amount exceeds this limit then the entire amount will be taxable in your case. Therefore it is necessary for you to know about such rules. For instance, if the amount deposited is Rs. 50,000/- and you do not know that if any further amount is deposited you will be charged tax. In such a case another Rs. 5000/- is deposited by your friend, you will be eligible for paying tax on the entire Rs. 55,000/-
The wedding is a costly affair and can be a nightmare from a tax perspective. But there is just one thing which gives you relief from this nightmare i.e. any amount given as a gift from your relatives or non-relatives can be tax-free. This amount has no limit set for it. However, it is not yet clear if this amount should be gifted on the day of marriage or a day or two prior or later. But let us be practical and take a step here to save some money from tax.
No tax on inheritance
You do not pay tax on any amount received as inheritance. So if you have received an X amount as an inheritance from a will of your relative, it is tax-free and need not pay anything as a tax. This exemption is legal in the Gift Tax Deed.
All such rules may help you be free from paying tax on gifts received by your relatives or friends. When something is legal, why not use it rightfully that with the fear of being levied with tax? This knowledge on tax on Gift Deed is definitely an intelligent study to do that can be helpful in future.