The Income Tax (I-T) Act has special rules for the taxation of gifts. As per the I-T Act, gifts include specified movable property, immovable property, etc. The I-T 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 of money or property having a value exceeding the specified amount, i.e., ₹50,000, shall be liable to pay tax on the value of such gifts.
The Finance Bill 2022 has mentioned that gifts of virtual digital assets will be taxed in the hands of the recipient. So, now the question remains whether gifts from specified relatives or gifts below ₹50,000 from non-relatives will continue to remain exempt for virtual digital assets?
Vide the Finance Bill 2022, the definition of property in section 56(2)(x) has been expanded to include virtual digital assets such as cryptocurrencies. Accordingly, my interpretation is that the exemptions of gifts from specified relatives or gifts below ₹50,000 from non-relatives will continue to remain exempt.
Suppose, Rohan acquires cryptocurrency A for ₹1 lakh and transfers it to his daughter-in-law Amisha. Amisha believes that since it is a gift from a relative, it is exempted and no tax is payable by her on this gift. Daughter-in-law and Father-in-law are specified relatives as defined under the Act, and hence this gift will remain exempt.
Let’s say Radhika acquires cryptocurrency B for ₹5 lakh and transfers it to her cousin Chandni. The latter believes that since it is a gift from a relative, it is exempt and no tax is to be paid by her on this gift. However, cousins are not included as specified relative as defined under the Act, and hence this gift will not be exempt.
Now, suppose if Deepak acquires 100 units of cryptocurrency D for ₹1 lakh and gifts 60 units of cryptocurrency D to his friend Mohan and 40 units of cryptocurrency D to his friend Mitali. The value of the gift received by Mohan will be ₹60,000 and hence will be taxable. However, the value of the gift received by Mitali will be only ₹40,000 and, hence will remain non-taxable.
Now, let us assume that Mitali similarly received a gift of cryptocurrency E from Ramesh her childhood friend and cryptocurrency F from her brother. The value of the gift of cryptocurrency E is ₹25,000 and cryptocurrency F is ₹50,000 respectively. Brother is specified relative as defined by the Act and hence any gift from brother remains exempt irrespective of the value. Now, the aggregate value of gifts received by Mitali during the financial year from non-relatives exceeds ₹50,000, and hence, the total amount of ₹65,000 ( ₹40,000 from Deepak and ₹25,000 from Ramesh) will be subject to tax.
Gifts also include properties received at a reduced price (i.e., for inadequate consideration). For example, Sumeet transfers cryptocurrency X worth ₹4 lakh to Vrinda for consideration of ₹1.65 lakh. Vrinda deducts ₹1,650 as TDS and pays the balance consideration to Sumeet. Vrinda believes that no other tax liability in respect of this transaction arises. However, this belief of Vrinda is incorrect. The transfer of cryptocurrency X was for inadequate consideration. Hence, the balance amount of ₹2.35 lakh ( ₹4 lakh – 1.65 lakh) will be taxable as a gift in the hands of Vrinda.
Now, suppose Vanita receives gifts worth ₹25 lakh (including ₹2 lakh worth of cryptocurrency) on the occasion of her marriage. The IT Act specifically exempts any gift received from anyone on the occasion of marriage. Hence, Vanita will not be liable to pay tax on these gifts including gifts of cryptocurrency.
Nitesh Buddhadev is founder of Nimit Consultancy.
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