There would rarely be a person who doesn’t like receiving gifts, but paying taxes on them, maybe not so much. However, as a responsible citizen, it is important to understand the taxation system of the country and to honestly pay the taxes as and when due, even on gifts.
A gift tax is paid when one person voluntarily transfers any property, cash, bonds, shares, or automobile without any or less than full consideration for such transfer. There is a certain limit per donee per year on gifts, which if surpassed shall be taxable. The limit is changed every year based on the inflation level. A return on such gifts must be filed if it surpasses the annual exemption limit or is of future interest. For taxes, the value of the gift shall be its fair market value on the date of the transfer.
The primary reason to introduce gift tax was to keep a check on people trying to evade their tax payments. It is a common practice for many to avoid paying taxes on their certain taxable income source by gifting the property to someone else, possibly a relative, while still reaping the benefit of such income. Practices like these help a taxpayer to show lesser income while filing their taxes, thus in return paying a smaller taxable amount than they were supposed to. Some other key features of gift tax are:
● Any gift transfer of any immovable property shall have to be registered in the name of the donee for it to be deemed a valid gift. Thus transferring the ownership of such a gift to the donee.
● An appraiser shall have to be appointed when the gift is of a real estate or collectable nature, to determine its fair market value at the time of transfer..
● Only gifts made in favour of the present interest of the donee shall be exempted from the tax. If it is made in the future interest, it shall be fully taxable as it were in the hands of the donor.
● A gift in present interest means that the donee must be able to use the gift immediately and it should not be for its future use.
● A gift once made cannot be revoked unless the gift deed specifically mentions such.
● Any legal obligation met towards the offspring or other dependent shall be exempt from gift tax.
