Gift planning

Section 56(2)(x) of Income Tax Act: • Gifts above ₹50K from non-relatives: taxable in recipient's hands • Gifts from relatives: tax-free (any amount) • "Relatives" defined broadly (spouse, sibling of self/spouse, parents/grandparents, descendants/their spouses, sister/brother of parents/grandparents) Gift sources: • Parents to children: tax-free • Spouse to spouse: tax-free • Marriage gifts: tax-free for amounts received around marriage • Inheritance: not a gift; covered separately • Friends, acquaintances: above ₹50K taxable Clubbing of income (Section 64): • Income from gifted assets to spouse/minor child: clubbed back with giver • Exception: gifted to adult child for "investment" purposes • Different rules for HUF • Important for tax planning

Practical gift planning: Parent-child gifts (most common): • Gift up to any amount tax-free (relative exemption) • Useful for: house purchase support, business setup, education • Recipient bears no tax • Giver: no tax (gift not income) Clubbing implications: • If parent gifts to minor child: income from gift clubbed with parent • If gift to adult child: no clubbing; child's income separate • Exception: gift to spouse for "investment" → income clubbed with giver (Section 64) Specific gift types: 1. Cash gifts: easy, fully tax-free if from relative 2. Property gifts: stamp duty applies 3. Mutual fund/equity gifts: requires demat-account-to-demat-account transfer 4. Real estate: gift deed + stamp duty 5. Gold/jewellery: physical handover; no formal documentation needed Gifts vs inheritance: • Gift: during lifetime, may be revocable • Inheritance: post-death, irrevocable Gift deed registration: • For movable property: not legally required but recommended • For immovable property (real estate): mandatory • Cost: ~1-3% of value (stamp duty)

Practitioner techniques: • Splitting income via gifts (carefully, within clubbing rules) • Gifting to children for educational expenses • Family settlements through gift deeds • Pre-mortem inheritance: gift now vs willing later Common HNW strategies: • Gift to adult children (rich enough to invest separately) • Gift to grandchildren (skip-generation, both relatives) • Family business shares (with co-ownership agreements) • Real estate gifts to consolidate ownership Tax-efficient gifting: • Gift to spouse: not tax for spouse, but income clubbed • Gift to minor child: tax-free transfer, income clubbed • Gift to adult child: tax-free transfer, no clubbing — most efficient • Charitable gift: 80G deduction Gift in exchange for services (e.g., long-term care): • Some courts have ruled this isn't pure gift • Document: gift deed without consideration • Independent value, not dependent on services Reverting gift on family dispute: • Difficult once made • Trust structure adds reversibility For estate-planning purposes: • Gift during lifetime can simplify post-death distribution • Reduces total estate (small benefit since no estate duty currently) • Shows giver's intent clearly • Reduces potential disputes

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