Cash, gold, jewellery and other gifts are a common part of Indian weddings which are usually given by family members and friends. While these gifts are usually exchanged as a gesture of goodwill, some newlyweds may wonder whether they need to pay tax on the gifts they receive during their marriage.
The income tax act provides a special exemption for gifts received on the occasion of a wedding. However, the is subject to certain conditions, making it important for taxpayers to understand what qualifies as a tax-free wedding gift and when tax rules will apply.
Do you have to pay taxes on wedding gifts?
Any form of gifts received by a taxpayer are considered as income and must be disclosed under the head ‘Income from Other Sources’. They are subject to taxation at applicable slab rates.
However, the law provides several exceptions, under which certain gifts are exempt from taxation. The following are some of the key exemptions available under Section 56 of the income tax act for gifts that are not taxed:
- Gifts received from relatives.
- Gifts received from non-relative up to ₹50,000 a year.
- Gifts by the way of inheritance or will.
- Gifts received on the occasion of marriage (wedding gifts).
As mentioned above, any gift received by the taxpayer on the occasion of their marriage is exempt and will not be taxed in the hands of the receiver or the one who gave it. However, it will still be treated as and will have to be disclosed accordingly, according to ClearTax.
Disclosure of gifts received by the taxpayer
Any gift received by a taxpayer, whether taxable or not, should be appropriately disclosed in the income tax return by the recipient wherever required. The responsibility for reporting such gifts rests with the person receiving them. You must report it under the head ‘Income from Other Sources’ in the ITR in the same financial year when you received the gifts.
A proper understanding of the tax treatment of gifts is important to ensure compliance with the provisions of the income tax law. Receiving high-value gifts without maintaining adequate records or making the necessary disclosures may, in some cases, attract scrutiny or penalty from the income tax department.
What happens if you fail to disclose such gifts in your ITR?
Under the income tax law, if the assessing officer confirms that a taxpayer has underreported or misreported their income, then a pеnalty undеr Sеction 270A of thе incomе tax act is to be chargеd.
For cases of underreporting income, the penalty will be equal to 50% of the tax payable on underreported income. If of income is confirmed, then the said taxpayer may be charged with up to 200% of the tax due on the misreported income.
The penalty for misreporting earnings (200%) applies when you deliberately provide false or misleading records. Intentional deceit is seen as a more serious offence than simple non-disclosure or unintended mistakes, ClearTax noted.
It is also important for taxpayers to rеmеmbеr that thе pеnalty undеr Sеction 270A will be in addition to thе tax duе on undеr-reported or misrеportеd income.