Are Your Gifts Tax-Free?
Here’s What You Need to Know!
Gifts received from specified relatives are exempt from income tax, regardless of the amount. However, gifts from non-relatives or non-specified relatives are subject to tax in the hands of the receiver if the total value exceeds ₹50,000 in a financial year.
Who Qualifies as a Relative?
Under the Income Tax Act, the following individuals are considered “relatives” for the purpose of gift tax exemption:
- Spouse of the individual
- Siblings of the individual
- Siblings of the spouse of the individual
- Siblings of either parent of the individual
- Lineal ascendants or descendants of the individual (parents, grandparents, children, grandchildren)
- Lineal ascendants or descendants of the spouse of the individual
- Spouses of the persons mentioned above
Tax Implications on Gifts from Relatives
Gifts received from these specified relatives are not taxable, regardless of the amount or nature of the gift (cash, property, jewellery, etc.).
Gifts from Non-Relatives
If an individual receives gifts from non-relatives (such as friends or distant relatives not covered in the definition above), these gifts are exempt from tax only if their total value does not exceed Rs 50,000 in a financial year. If the aggregate value exceeds Rs 50,000, the entire amount becomes taxable under the head “Income from Other Sources.”
Remember, while gifting immovable property or high-value items, it’s prudent to formalize it through a gift deed. This provides clear documentation of the transfer and can be useful for tax purposes, legal clarity, and avoiding disputes
(Contributed by Yogesh Gola, Relationship Manager, Advisory Desk, Hum Fauji Initiatives)
Key Financial Moves for NRIs Coming Home
(‘Ghar Wapasi’!)
Source: SBNRI
Revise Your Banking Arrangements
As an NRI, you may hold accounts like FCNR, NRE, or NRO with an Indian bank. If you have an FCNR deposit, you can maintain it until maturity before converting it to a resident account. Upon permanently returning, you’ll need to convert your NRO/NRE accounts into resident savings accounts.
Reassess Your Investments
If your move is permanent, consider liquidating foreign assets since income from abroad for residents in India will be taxable in India. Building a diversified investment portfolio in India, including mutual funds, bonds and fixed deposits, is essential. Inform your bank of your updated residential status to align your investments with Indian regulations. Similarly, if you hold stocks under your NRI status, you’ll need to close your Portfolio Investment Scheme (PIS) account.
Understand Taxation Changes
As a resident, your tax obligations will shift. Income earned from foreign property or investments will be taxable in India. Knowing whether you fall under Resident and Ordinarily Resident (ROR) or Resident but Not Ordinarily Resident (RNOR) status will determine your tax liabilities. For instance, any income earned from a property abroad or through pension from investments like 500K (in the US), is taxable in India after you become a resident Indian.
Secure Insurance Coverage
Foreign insurance policies may not offer coverage in India. Upon your return, securing comprehensive health and life insurance for your family is crucial. A term plan with maximum coverage is advisable for financial protection.
By planning ahead, you can ensure your return to India is financially smooth and rewarding 
(Contributed by Neeraj Kumar, Financial Planner, Team Arjun, Hum Fauji Initiatives)
The Wisdom of Waiting: Why sometimes Delaying Retirement Can Be a Smart Choice
Retirement is a significant milestone, and being well-prepared can make all the difference in enjoying your golden years, especially for those who will not get a pension from the employer or have not built up a good retirement corpus till then. Before taking the final step, it’s crucial to assess whether you’re financially ready.
Sometimes, delaying retirement can be the key to a more secure future. Here’s why:
1. Strengthen Your Financial Foundation
If your nest egg is smaller than you’d like, working a bit longer allows you to grow your savings. You can continue contributing to your retirement fund, take advantage of employer matches, and enjoy the benefits of compounding interest.
2. Maximize Retirement Benefits
Postponing retirement can boost your pension or Social Security payments, providing a larger income when you need it most. This extra cushion can help ensure that your savings last throughout your retirement.
3. Embrace a Gradual Transition
Instead of jumping into full retirement, consider a gradual transition. Reducing your work hours or going part-time can give you time to adjust to the new lifestyle while still earning an income.
4. Achieve Financial Freedom
If you have outstanding debts, delaying retirement can give you time to pay them off, allowing you to enter retirement without financial burdens. 
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In short, by waiting a little longer, you can build a stronger financial foundation, ensuring peace of mind and a more comfortable retirement.
(Contributed by Bhawana Bhandari, Associate Financial Planner, HNI Desk, Hum Fauji Initiatives)
Question: I have an investment in PMS. With recent changes in taxation, how it will affect my returns? Should I switch my investments to mutual funds for better tax efficiency?
Our Reply: When you invest in a PMS (Portfolio Management Service), it’s like you’re directly buying and selling stocks. So you pay taxes just like if you were doing it all by yourself. One downside, though, is that the tax authorities have been less generous lately, not allowing you to deduct the management fees you pay to the PMS manager from your earnings. This could reduce your after-tax returns.
On the other hand, mutual funds work a bit differently. The tax you pay is based on the profit you make when you sell your mutual fund units. The individual stocks or fixed income products that the fund manager sells do not count towards your profit and is not taxed in your hands. This leads to better tax-efficiency for you. For example, if you choose a growth option in a debt or equity mutual fund, your returns are taxed as capital gains, which, in general, is more favourable compared to interest or dividends.
Plus, mutual funds automatically deduct management expenses before calculating the price of your units, so you don’t have to worry about those fees eating into your returns later. Hence, mutual funds provide better tax efficient returns as compared to a PMS or an AIF. A typical illustration demonstrating the working and impact of churning of PMS is given below for better clarity.
Ultimately, the choice between mutual funds and PMS depends on individual investment preference, risk tolerance, investment objectives and portfolio size. By weighing these factors carefully, investors can optimize their investment portfolios to achieve their financial goal effectively.
(Contributed by Team Dhruv, Hum Fauji Initiatives)
