A gift is not judged by its value, but by the thought that goes behind it. But not when the taxman wants a share of it.

Under the provisions of income tax laws, it is important to know exactly how the giver is related to you, how much one is giving and why.

The Gift Tax Act has had a somewhat chequered past. The act was in force till 1998 when the person who gave a gift was taxed at 30 per cent of the amount of the gift; the recipient did not have to pay.

However, the austere provisions and litigation regarding the valuation of the gifts led to a quiet burial of the act in 1998. Needless to say, this turned out to be a heaven-sent opportunity for many to evade taxes and launder money. The government was the loser in more ways than one.

In a bid to curb these laundering activities, the government re-imposed the act last year in a new avatar.

The only saving grace is that the gift tax is only applicable when you receive a gift in cash or any other instrument like a demand draft or a cheque. It is also applicable if the person giving you the gift directly transfers the money to your account.

It is assumed that all these amounts are without any consideration. Consideration, according to the tax authorities, means getting something in return. For instance, if you gift Rs 50,000 to someone who, in turn, gives you a piece of jewellery, it is called a consideration. It will be treated as a purchase, not a gift.

Gifts in kind, like shares or gold, are exempt from gift tax. Does that mean any cash gift from anyone is taxable?

No, the rules provide that if you get a gift from a relative out of love and affection, it is exempt, irrespective of the amount. Relatives include spouses, brothers and sisters, brothers- and sisters-in-law, maternal and paternal uncles and aunts, lineal ascendants and descendants and their spouses.

You will also have to ensure that the gift is made out of love and affection. So, if there?s a family arrangement being drafted, ensure there?s no mention of a dispute.

Gifts from anyone else will be taxed. That includes your best friend too. Gifts from abroad from people who are not relatives, for example a cousin or close friend, will also be taxed.

Gifts above Rs 25,000 will be taxed. If, however, a person gets five different gifts, each worth less than Rs 25,000, they will not be taxed. There is no restriction on the number of gifts; it is only on the amount.

Gifts received during a marriage are exempt from tax up to Rs 1 lakh. However, gifts received on birthdays, anniversaries and festivals are not.

Do accept the gift in writing. You can do this via a gift deed, which is a legal document that states how much you received, from whom and when.

Both the person making the gift and the one receiving it must sign the gift deed.

No separate tax is levied on gifts. You will be taxed according to the income bracket you come within after the gift is clubbed with your income under the head ?income from other sources?.

Gift tax is also applicable under the provision of clubbing of income. You may end up paying tax on the gifts your children receive as well and also on those another person gets, if clubbed with your income. Even loans received could be taxable as your income.

Sadly, these provisions have hit the genuinely needy. For instance, cash from a charitable trust, medical treatment of a needy friend, compensation to the kin of accident victims and personal accident insurance paid to the families of such victims will all be taxable.