The Income Tax (IT) Act has special rules for taxation of gifts. As per the IT Act, gifts include specified movable property, immovable property etc. The IT Act exempts gifts from specified relatives irrespective of the value of such gift. For non-relatives, section 56(2)(x) of the Act provides that any person who receives any sum or property, the value of which exceeds the specified amount, that is, 50,000, shall be liable to pay tax on the value of such gifts.
The Finance Bill 2022 mentions that the gift of virtual digital assets will be taxed in the hands of the recipient. So, now the question remains whether gifts from specified relatives or down gifts? 50,000 exemption from non-relatives to continue for virtual digital assets?
Under the Finance Bill 2022, the definition of asset has been expanded in section 56(2)(x) to include virtual digital assets such as cryptocurrencies. Accordingly, my interpretation is that gifts from specified relatives or gifts are exempted from 50,000 exemption from non-relatives to continue.
Suppose, Rohan obtained cryptocurrency A. 1 lakh and transfers it to his daughter-in-law Amisha. Ameesha believes that since it is a gift from a relative, it is exempt and no tax is payable by her on this gift. Daughter-in-law and father-in-law are relatives as defined under the Act, and hence this gift will remain exempt.
Suppose Radhika acquired cryptocurrency B 5 lakhs and transfers it to his cousin Chandni. The latter holds that since it is a gift from a relative, it is exempt and he does not have to pay any tax on this gift. However, cousins are not included as relatives as defined under the Act, and hence this gift will not be exempt.
Now, let’s say Deepak acquires 100 units of cryptocurrency D 1 lakh and gifted 60 units of cryptocurrency D to his friend Mohan and 40 units of cryptocurrency D to his friend Mithali. The value of gift received by Mohan will be 60,000 and hence will be taxable. However, the gift received by Mithali will be worth only. 40,000 and, hence, will remain non-taxable.
Now, suppose Mithali similarly received a gift of cryptocurrency E from her childhood friend Ramesh and cryptocurrency F from her brother. The value of the gift of cryptocurrency e 25,000 and the cryptocurrency is F 50,000 respectively. Brother is specified as relative as defined by the Act and hence any gift from brother is exempt irrespective of value. Now, the total value of gifts received by Mithali from non-relatives during the financial year exceeds 50,000, and hence, the total amount of 65,000 ( Deepak and from 40,000 25,000 to Ramesh) will be subject to tax.
Gifts also include assets received at a low cost (ie, for insufficient consideration). For example, Sumeet moved the cryptocurrency X price 4 lakhs to Vrinda for consideration 1.65 lakhs. Vrinda cuts 1,650 as TDS and pays the balance amount to Sumit. Vrinda holds that no other tax liability arises in respect of this transaction. However, this belief of Vrinda is wrong. The transfer of Cryptocurrency X was for insufficient consideration. Therefore, the balance of 2.35 lakh ( 4 lakh – 1.65 lakh) will be taxable as gift in the hands of Vrinda.
Now, suppose Vanitha gets gifts 25 lakh (including 2 lakhs worth of cryptocurrency) on the occasion of her marriage. The IT Act specifically exempts gifts received from someone on the occasion of marriage. Therefore, Vanitha will not be liable to pay tax on these gifts including gifts of cryptocurrency.
Nitesh Buddhadev is the founder of Nimit Consultancy.
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