Ever worried about taxmen knocking your doors when you exchanged Rings with your would-be spouse. Yes, technically there is Income-tax on Engagement Rings in India.
Under the Gift Tax provisions (Section 56(1)(vii) of Income Tax Law in India, one may be liable to tax on exchange of Engagement Rings.
Sounds absurd, but well it’s true.
The law obviously exempts
(i) Gifts from relatives and the definition of ‘relative’ under the law includes the spouse of the individual, it does not include someone who will become spouse at a later date.
(ii) Gifts on the occasion of marriage of the individual, but marriage does not include Engagement.
There is a monetary ceiling as well of Rs 50,000/- of all gifts received during the financial year. If the value of Gift received from your would-be spouse & would-be in-laws aggregated with Gifts received from all non-relatives during the financial year exceed Rs 50,000/-, then you may be liable to include the same in you Income Tax Return and pay Income-tax accordingly.
This Rule is in force from 1 September 2004 till date but has ironically not gained the attention of the taxpayers or the prying eyes of taxmen.