When Gifts Treated as Income ?

The FBR will consider provision of gift from closed blood relations. If received through cross cheque or banking channel. Otherwise it will add in income chargeable to tax.

The FBR has also empowered Commissioners to freeze any domestic assets of a person involved in offshore tax evasion. About taxation on gift, under Section 39 of Income Tax Ordinance 2001. If cash gift received from relatives including grandparents, parents, spouse, brother, sister, son or a daughter but the same not received through cross-cheque or banking channel, the amount of gift will still add in income chargeable to tax under the head “Income from other sources.”

Analysis of Income Tax Returns filed in previous years shows that huge amount of non-recurring receipts from unrelated persons transferred in the garb of gifts to avoid incidence of taxation.

“Section 79. Non-recognition rules.—Sub-section (1)(c) For the purposes of this Ordinance and subject to sub-section (2), no gain or loss shall be taken to arise on the disposal of an asset – (c) by reason of a gift of the asset [to a relative, as defined in subsection (5) of section 85];“

Fair Market Value of Property

In order to discourage this practice of undisclosed receipts, section 39 amended through the Finance Act, 2019 to include any amount or fair market value of any property received without consideration or received as a gift in income under the head “Income from other sources.”

Gift In Cash or Through Banking Channel

However, gift received from grandparents, parents, spouse, brother, sister, son or a daughter shall not be included in such income. The new provision is subject to sub-section (3) of section 39 which states that an amount received by a person otherwise than by a cross-cheque drawn on a bank or through a banking channel from a person holding a National Tax Number treated as income chargeable to tax under the head “Income from other sources”.

“Section 39. Income from other sources. (3) Subject to sub-section (4), any amount received as a loan, advance, deposit [for issuance of shares] or gift by a person in[a tax year]from another person (not being a banking company or financial institution) otherwise than by a crossed cheque drawn on a bank or through a banking channel from a person holding a National Tax Number shall be treated as income chargeable to tax under the head “Income from Other Sources” for the tax year in which it was received.“

When Gift will Exempt from Tax ?

This means that gift received by a person is chargeable to tax if gift is not receive from grandparents, parents, spouse, brother, sister, son or a daughter of the recipient. However, even if cash gift received from the relations mentioned above but the same not received through cross-cheque or banking channel, as the case may be, the amount of gift will still be added in income chargeable to tax under the head “Income from other sources,”. So, for close relatives it will be exempted from tax if received by fulfilling the following conditions:

• Received through crossed cheque via banking channel
• Both the parties holds NTN no and declare in there tax returns as gifts
• Gift deed has been signed between the parties