Got a gift above ₹50,000 from a non-relative? This income tax rule could make your tax liability zero

Receiving a gift from a friend, acquaintance, or any non-relative may feel like a financial bonus, but it can also raise tax questions. Under the Income Tax Act, gifts received from non-relatives can become taxable if they cross the prescribed threshold. However, many taxpayers wonder whether the tax liability can be reduced or even become nil if their total taxable income falls within the limits for claiming the Section 87A rebate.

Today's Q&A explains such details in response to a query by a reader.

A resident individual is eligible for a tax rebate under section 87A under both the tax regimes. However, the threshold limit for eligibility and the amount of rebate vary under both tax regimes.

Under the old tax regime, a rebate of up to ₹12,500/- is available if the total taxable income does not exceed ₹5 lakh, including the long-term capital gains on listed equity and equity-oriented schemes up to ₹1.25 on which the prescribed tax rate is zero, thus effectively making such long-term capital gain fully tax exempt.

This rebate under section 87A under the old tax regime is available against tax liability of any nature except the long-term capital gains on listed shares and units of equity-oriented schemes on which tax at 12.50% is payable.

Under the new tax regime, a rebate of up to ₹ 60,000 is available provided the normal income on which tax is payable at slab rate does not exceed ₹12 lakh. This rebate is not available against the tax liability in respect of incomes which are taxed at special rates like all long-term capital gains and short-term capital gains on listed shares and equity-oriented schemes irrespective of the level of these incomes.

As per Section 56(2)(x) of the Income Tax Act, 1961, if the aggregate value of all the gifts received by a person from all the sources exceeds fifty thousand rupees in a financial year, the whole of such gift is treated as income of the taxpayer subject to some exceptions like gifts from specified relatives and assets received under a will or as inheritance.

Disclaimer: The views and opinions expressed above are those of respective experts/commentators and do not reflect the views of Upstox. The above Q&A is only for informational purposes and should not be considered investment or tax advice from Upstox. Please consult a tax expert for your complex tax problems.