Showered with gifts at your wedding? Here’s how they will be taxed (or not)

Gifts received by brides and grooms at their wedding do not attract tax

Income tax rules, typically, do not consider gifts with a friendly eye.

Gifts worth over Rs 50,000 are taxable, unless received from close relatives such as a parent, sibling and spouse. For gifts given by others, one has to add their monetary value under the head ‘Income from other sources’ and pay tax on the entire amount at the applicable slab rate.

However, the tax department is more generous when it comes to wedding presents. Put simply, no tax has to be paid on gifts received on such occasions – whether from close relatives or others.

“Gifts received by a groom or bride on the occasion of marriage from anyone, including from in-laws, would not be subjected to tax under Section 56(2)(x) of the Income Tax (I-T) Act. That is, irrespective of whether such gifts are received from specified relatives or not, the exemption is available,” said Suresh Surana, founder of RSM India, a Mumbai-based tax and financial consulting firm.

In the context of gift tax, ‘specified relatives’ include parents, parents-in-law, spouse, siblings and spouse’s siblings, among others.

“Brother or sister of either of the parents of the individual, any lineal ascendant to descendent of the individual or his/her spouse are also treated as close relatives,” said Chetan Chandak, director of tax consulting firm TaxBirbal.

Yet, the relaxations come with a set of nuances that one ought to be aware of.

Also read: Weddings and money: Gifts of gold are not taxed, but…

More than wedding ceremony gifts

For one, the relaxation is not restricted to gifts received on the day of the main wedding ritual.

“The exemption is for gifts received ‘on the occasion of marriage’. Thus, it does not specifically require that such gifts should be received on the day of the wedding but the gift should relate to the occasion of marriage,” said Surana.

Does this mean that if a couple receives gifts throughout a six-month period extending from the engagement date to the marriage ceremonies, there would be no tax impact?

“The tax department may contend that the exemption may not be applicable as the gifts do not relate to the occasion of marriage and the recipient of such gifts would be at risk of being subjected to potential litigation,” said Surana.

On the recipient’s part, it is important to maintain meticulous records of all gifts received throughout the period.

“In India, marriages are celebrated in a grand way. They start with the engagement ritual and end at the actual marriage ceremony or reception. So one can claim that any gift received from the date of engagement till the actual date of marriage can be considered as a gift received on the occasion of the marriage and hence exempt,” said Chandak.

Diligent record-keeping will ensure that one is in a better position to respond to any tax notices should the need arise. “Though this can be debated, it can be proved with the help of documents and records like invitation cards, list of invitees, list of the person from whom the gift is received, photographs, video recordings, bills of the gifted article, etc if the need arises,” he explained.

Apart from a list of all financial gifts as also those received in kind, the records should keep track of the dates of receipt, names of the guests or relatives, and purchase invoices.

“A gift received from any foreign relative may require maintenance of their travel schedule and other documents demonstrating that the gift received has clear association with the wedding,” said Surana.

Read: Destination wedding on a budget: Say 'I Do' in Andamans, Jaipur, or Goa under Rs 50 lakh!

Capital gains on sale of gifts

Section 56 of the I-T Act specifies the list of movable properties shares/securities, bullion, jewellery, archaeological collections, drawings, paintings, sculptures and also virtual digital assets (VDA) that are exempt from tax in the case of weddings but subject to tax if received from non-relatives on other occasions.

Tax may not have to be paid on the monetary value of the gift received, but if you decide to sell it later and net gains, tax will come into play. Capital gains tax will need to be paid on the profit made from the sale of say, financial instruments or gold, depending on the nature and period of holding these assets.

“However, while computing such capital gains, the cost of acquisition for the transferee or recipient of a gift would be the acquisition cost of the previous owner under section 49(1) of the I-T Act. Further, the period of holding of such financial instruments or gold would include the period for which such asset was held by the previous owner/donor gifting such asset,” said Surana.

Any gains made on the sale of physical gold – which is often gifted by close relatives as well as others – received at the time of the wedding will attract long-term or short-term capital gains tax, depending on the holding period.

Also read: Tying the knot? Tips to keep your wedding budget in control

If the holding period for physical gold is over three years, long-term capital gains tax is 20 percent (plus cess of 4 percent) with indexation benefits. In the case the holding period is less than three years, the gains will be considered short-term in nature and attract tax at the applicable slab rate.

The date of receipt, date of acquisition of the original owner, and the fair market value of the asset at the time of sale will be considered to compute the capital gains.

Capital gains tax rules for the bride’s gifts from in-laws vary from the groom’s. “Parents-in-law would be covered under close relatives. However, while the gift itself is tax-exempt, if a daughter-in-law receives the gifts – say money – from the them and invests it elsewhere, any income generated would be taxable in the hands of the parents-in-law because of the clubbing provisions under Section 64,” said Chandak.