GIFTS – A MEAN TO LOWER YOUR TAX LIABILITY     Generally, any gift you receive from various members of your family and specified relatives is not considered as your income because it is a capital receipt. Thus, no income tax is payable on gifts received from close relatives as defined below. Gifts you receive from persons other than your relatives, above of Rs. 50,000 is considered as your income and it is taxable as ordinary income. Thus tax on taxable gifts is to be paid by the receiver of the gift.     Also gifts received in-kind from any person are not taxable.     Additionally, gifts under a will or by way of inheritance, or those received on marriage also not taxable.     If you receive a gift from your close relatives which only includes your spouse, any lineal ascendant or descendant of you or your spouse, brother or sister and their spouses of you or your spouse and brother or sister of your and your spouse’s.     The status of the payer of gift is not relevant. The payer could be resident or non-resident. The place of receipt is also not relevant. Therefore, gift of money received by a resident individual outside India from an unrelated non-resident (who is not a specified relative) will also be covered by the provision unless of course the same is covered in any of the other specific exceptions. It seems that exception of receipt from specified relative will apply only in case of individuals. Therefore, gift of money received by a HUF from the relative of a member of the HUF is not covered in any of the exceptions and therefore, one has to be a little careful in such cases.     With this tool of making Gifts, if another tool of basic exemption limit can be used, you can save heavy taxes. For the purpose you can give gifts to your parents who have basic exemption limit of Rs. 2,25,000/- & children above age 18 who have basic exemption limit of Rs. 1,50,000/- for financial year 2008-09. The children should not have much income in this case.     Let’s see Mr. Aniket’s case. He has income of Rs. 40 lacs & wants to save his taxes. If gifts Rs. 20 lacs to his parents, it is not taxable in the hands of the parents. His parents invested it in Fixed Deposit having interest rate 10%.They will earn Rs. 2 lakhs which will not be clubbed in the hands of Aniket & his parents will also not have to pay any taxes.     Separately, though gifts to relatives are not covered, adequate precaution still needs to be exercised while gifting assets to your spouse and children in view of the specific provisions under the Indian tax laws, whereby, income arising on such gifted assets continue to clubbed in the hands of the donor and be taxable in the donor’s hands.     Assessees can also transfer income-earning assets to children above 18 to provide them a capital base for future business ventures. A family business can also be transferred to relatives without incurring gift tax liability.     Consider the case of Amit, who has received a gift of Rs 75,000 from his close friend on Dipawali. Under the Income tax provisions Rs. 25000 would be taxable in Amit’s hands. If Amit receives two gifts of Rs.37500 each from two of his close friends then he would not have any taxable income from gift.     While the definition of relative has been kept wide enough to cover all kinds of relationships, it can lead to some unintended interesting situations, as mentioned below.     Amit had received gift of Rs 1,00,000 during the financial year 2006-07 from his uncle. During the current financial year 2007-08, out of huge bonus of Rs 10,00,000 (net of tax) received by him from his company, Amit gifted Rs 6,00,000 to his uncle, who intended to buy a car.     In the above situation, gifts received by Amit during financial year 2006-07 would not be taxable since gift from brother of either of the parents would be treated as gift from relative, and accordingly, would not be taxable.     However, gift to his uncle would be taxable in his uncle’s hands in financial year 2007-08, since there are no specific exclusions for such bona fide cases. It would be advisable for Amit in such a case to consider buying the car himself and gifting the same to his uncle, since it appears that gifts in kind do not fall within the purview of income tax, on the basis that they cannot be considered as ‘a sum of money’ for tax purposes.     Hence, if both the tools are used in rational manner, it will help you to save some taxes.