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The Union Budget of '04-'05 announced a tax on any monies received from non-relatives. This was widely perceived to be the comeback of the much-hated gift tax that was earlier abolished. But read the fine print and you will know that there is a vast difference between the earlier Gift Tax and the announcement made in the budget. The Gift Tax Act levied a tax on the giver of the gift while the Income Tax Act levies a tax on the receiver of the gift.
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What is taxed?
Any sum of money in excess of Rs. 25,000 received by a person in cash or by cheque or draft or any other mode of credit would be charged to tax, if it is received without any consideration for goods or services. Here, the section provides relief in the sense that only such sums received from non-relatives are chargeable to tax.
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Who is a relative?
Relative is defined to include your spouse, your brother or sister, your spouse's brother or sister, the brother or sister of either of your parents, any lineal ascendant or descendent of your own or your spouse and the spouses of all the persons referred to above. Again, the gift from a relative must be out of natural love and affection. Experts say that if the amount received as gifts is not in line with the financial capacity of the person making the gift, the case could come up for scrutiny. The objective here is obviously to plug certain loopholes - to dissuade persons who use this route of 'gifted money' in order to recycle black money.
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What is exempt?
A reason to cheer is that any cash gifts that you may receive on your wedding day, whether from relatives or non-relatives, up to a limit of Rs. 1 lac would not fall under the provisions of this section. Any sum received by you under a will or by way of inheritance would be tax-free. In the case of the relationship between the employer and employee, any sums by way of bonus, gratuity, pension or insurance paid either to the employee or to the dependent of the deceased employee would also be exempt from tax.
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