Zero Tax On Wedding Gifts: A Loophole For The Rich To Amass Wealth?
As the season of extravagant celebrity weddings sets in, it has not only driven the families and relatives of the newlyweds into a frenzy of excitement and awe but also the people listening to stories of fairytale marriages from the media. First, there was cricketer K.L. Rahul and actress Athiya Shetty’s wedding on January 23, followed by movie stars Sidharth Malhotra and Kiara Advani’s grand wedding in Suryagarh Palace in Rajasthan's desert city of Jaisalmer on February 6.
According to media reports, K.L. Rahul has received several expensive gifts from his ex-colleagues and friends, including Virat Kohli and M.S. Dhoni. While Kohli has gifted a swanky BMW car worth a whopping Rs 2.17 crore, Dhoni, former Indian cricket captain, has sent an Rs 80 lakh ‘Kawasaki Ninja’ bike to KL Rahul as a token of love for the newlywed couple. Reports further said Suniel Shetty, Athiya Sethi’s father, has gifted the couple a lavish apartment in Mumbai worth around Rs 50 crore. Also, there’s a report that Salman Khan, Suniel Shetty’s close friend, has gifted the couple a luxurious Audi car. In addition, Jackie Shroff, the senior actor, gifted expensive watches to the couple. However, there is no official confirmation about the gifts.
Section 56 (2) of the Income-tax, 1961, covers the taxability of gifts received from anyone and at any occasion. General gifts to relatives also come under the same section as wedding gifts received by the newlywed couple from their immediate family or relatives. Friends do not come under the definition of relatives. Hence, gifts received from friends are taxable if the value of the gift is more than Rs 50,000. However, for weddings, gifts received from family, relatives, or friends are not taxable. Gifts such as a house, a car, cash, jewelry, and stocks, are exempt from tax, provided these are received from relatives, friends, or family members.
Hence, as these gifts attract zero tax, is a loophole for the rich to amass wealth?
Is It A Loophole?
It is customary for Indian families to give gifts on the occasion of marriage. Earlier, we had gift and wealth taxes, abolished in 1998 and 2015, respectively. However, an individual can pass on his wealth or assets to the next generation as part of inheritance at any time, including on the occasion of marriage.
Gifts are taxable in the hands of the recipient unless received from a relative as specified in the Income Tax Act, as friends are not covered under the definition of relative, gifts from friends are taxable if the value exceeds Rs 50,000. However, wedding gifts to couples are not taxable.
Explains Suneel Dasari, founder and CEO, EZTax.in, an online income tax filing portal, “Marriage is the only occasion where the gifts are not taxable, even if they are received from anyone. However, married couples must maintain documentation for all the valuable gifts received at the time of their wedding for income tax purposes. Gifts given to the couple during the wedding are only tax-free. The gifts received by the parents of the couple or other relatives are taxable if they exceed a certain threshold.”
He further says that the income tax officer might check for the genuineness of the transaction. If they feel there is no satisfactory proof or explanation, they might levy a 60 per cent tax along with interest and penalty. "Tax exemption on wedding gifts can be abused by a certain group of people who wield power and authority to avoid paying taxes. Probably the reason to see extravagant behavior at weddings conducted at who's who of Indian affluent society," adds Dasari.
Things To Keep In Mind
While gifts received by a newlywed couple for their wedding are tax-exempt, they would need to pay tax in case income is generated through these gifts. For example, suppose you get a car at your wedding and let it out to rent. In that case, the income generated through your vehicle would be taxable. In case the couple decides to sell the car, the profit from the sale would also be subjected to tax.
