Do wedding gifts attract tax?

The marriage season is fast approaching. This is a season where newly wed couples are gifted various things from cash to consumer goods, jewellery to automobiles and even property and financial instruments such as shares, fixed deposits and mutual funds. Since this involves a lot of money, are there any tax implications on the gifts? We will tell you all here.

Under Income Tax Act 1961, tax has to be paid if any gift worth more than Rs 50,000 is received in a financial year. However, there is no tax on gifts of any value and type if it is received from people falling within the definition of ‘relative’. The definition of relative includes spouse, sibling, parents and spouse’s parents.

This means that apart from marriage, even normally if anyone receives shares, FD, mutual fund or any property as a gift from such people they will not be taxable.

Now let’s talk about friends or acquaintances as many gifts are received from them at weddings. As per the Income Tax law, marriage is the only occasion when no matter how expensive a gift a person receives — movable or immovable property– no tax has to be paid on it.

If you receive gifts on occasions other than marriage, such as anniversary, birthday or festivals, you will have to pay tax above the specified limit.

In such a situation, tax will not be levied only under two conditions, first, If the amount of gifts received in a financial year is less than Rs 50,000 and second, if the gift is being received from a close relative,

It is clear that no matter what couple receive as wedding gift from anyone i.e. family, relatives or friends, they would not have to pay tax on the gifts.

But any income derived from the gifts will be taxable.

Let us understand this with an example. Suppose the groom gets a house as a gift from his father-in-law which has now been put on rent. The rent will be the income from gift and tax needs to be paid on the rent. Similarly, if an FD of Rs 5 lakh is received as a gift, then the interest received from the FD will be taxable.

Not only this, if the gifted property, shares or mutual funds is sold, then capital gains tax has to be paid. Capital gains tax will depend on the holding period, i.e. for how long the asset has been held and sold. Holding periods differ for various assets.

Suppose the couple gets a house in November 2023 which he sells in 2027, the profit made from selling the house will be considered as capital gain. The holding period will be calculated from the date the house was actually purchased and not from the date of receipt of the gift.

So, overall, no matter how expensive the gift the bride and groom receive at the wedding, no tax will have to be paid on it. Tax will be levied only when you earn any kind of income from the gift.