The Indian Culture has thousands of years of history as well as various traditions attached to it. It is also a birth place of many religions like Hinduism, Sikhism, Buddhism etc. Besides, India is a country with diversified culture where each occasion is a reason to celebrate and show love and affection to close family members and friends. Gifts are exchanged on numerous occasions like Diwali, Raksha Bandhan, Christmas, New Year etc. In addition to this, some people also consider Gifting as a status symbol. But little did you know that these gifts are taxable after a certain limit and one needs to pay income tax on gifts received by them. Therefore, the Government of India introduced Gift Tax in April, 1958 regulated by the Gift Act, 1958 (GTA). It was introduced with an objective to impose tax on receiving and giving gifts under certain specific circumstances. It is important to know taxation involved with regards to gifts in India in order to avoid any further unplanned tax outflow.
Tax was levied on gifts in the hands of the person who receives it by enacting the Gift Act, 1958. However, it was later abolished in the year 1988. And six years later it was re-introduced under section 56(2) (V) of the Income-tax Act, 1961, for taxing gifts in the hands of the recipient. So, as per the law amended in the year 2017, ‘‘gifts received by any person are taxed in the hands of recipient under the head ‘Income from other sources’ at normal tax rates”.
Following are the provisions of the Gift Tax Act.
| Kind of gift covered | Monetary threshold | Quantum taxable |
|---|---|---|
| Any amount of money without consideration | Sum > 50,000 | Total amount of money received |
| Any immovable property such as land, building, etc. without consideration | Stamp duty value > Rs 50,000 | Stamp duty value of the property |
| Any immovable property for inadequate consideration | Stamp duty value exceeds consideration by > Rs 50,000 | Stamp duty value Minus the consideration
Example 1: Stamp duty value Rs 3,00,000 Consideration Rs 75,000. Taxable amount is Rs 2.25 lakhs (stamp duty value exceeds consideration by > Rs 50,000) Example 2: In Example 1, if consideration is Rs 2,80,000, taxable gift amount is Nil as stamp duty value does not exceed consideration by > Rs 50,000 |
| Any property (jewelry, shares, drawings, etc.) other than immovable property without consideration | Fair market value * (FMV) > Rs 50,000 | FMV of such property |
| Any property other than immovable property for a consideration | FMV exceeds consideration by > Rs 50,000 | FMV Minus consideration (Same example in case of immovable property can be referred) |
The provisions of the stamp duty value are very similar to the provision as per section 50C of the Income Tax Act. The provision of Gift Tax is mentioned in brief below:
To compute gift tax stamp duty for immovable property, stamp duty needs to be considered. However, the stamp duty value can be higher for various reasons and one such reason can be the time gap between date of registration and agreement fixing the consideration. Hence, with regards to gift tax, stamp duty value as on the date of agreement fixing the consideration must be kept in mind if the following conditions are satisfied:
Date of agreement and date of registration are different
Consideration is either paid in part or can be fully paid by way of an account payee cheque, by using electronic mode of transfer through bank account or bank draft on or before the date of agreement for transfer.
Besides, the tax officer is required to evaluate all the records in case the taxpayer has questioned or disputed the stamp duty value adopted by valuation authority as per Section 50C of the Income Tax Act.
As rules laid by the Government there are certain gifts that do not attract tax as and when received by any person in the form of Gift.
Note: Donee Meaning – A person who receives a gift is known as donee.
| Category of done (recipient of gift) | Category of Donor | Occasion Covered |
|---|---|---|
| Individual A gift from relative is not taxable for a donee, but income from such gifts may be taxable in some cases For Instance: deemed owner concept in house property or clubbing provisions etc. | Relative Family members like your spouse, brother, sister of self and spouse, parents or parents in law or descendant of self or spouse are mentioned here | NA |
| Individual | Any person | Marriage of an Individual |
| Any person | Any person | Under a will or by way of inheritance |
| Any person | Individual | In contemplation of death of donor or payer |
| Any person | Local authority – Panchayat, Municipality, Municipal Committee and District Board, Cantonment Board | NA |
| Any person | Any fund, foundation or university and other educational institution. Or someone from medical institution or any trust or institution referred in Section 10(23C) | NA |
| Any person | Any religious or charitable trust under section 12A or section 12AA | NA |
| Any trust, university, fund, educational institution which is established for charitable/religious/educational /philanthropic purpose and approved by prescribed authority [Refer Section 10(23C) (iv) (v) (vi) and (via)] | Any person | NA |
| Members of HUF | HUF | Any distribution of capital assets on total or partial partition of a HUF |
| Trust created or established solely for the benefit of relative of the Individual | Individual | NA |
Disclaimer:
There is excessive tax planning in India using gifts which apparently fall under the scrutiny of the tax department, especially if it’s in huge quantity. Therefore, it is important to maintain documents to establish the genuineness of gift received.
Ans: Any gift in form of cash, cheque, land, building or property in taxable if it exceeds more than Rs. 50, 000.
Ans: You can give an amount up to Rs. 50,000 to a family member without it being taxed as per the Income Tax Act, 1961.
Ans: No, gift tax is not abolished in India. Any gift received with an amount more than Rs. 50,000 is taxable under Income Tax Act, 1961.
Ans: Yes; You have to pay taxes on the money gifted to you, as the receiver will have to bear the taxes applicable on them (if the amount exceeds more than Rs. 50, 000)
Ans: yes, you do need to duly declare income that you have received in the form of gift. It is the person who receives gift it is subject to tax.
Ans: You can avoid gift tax by learning more about the Gift Tax laws in India. However, the best way to avoid gift tax is by avoiding to receive any gift in form of cash, property etc. aggregating more than Rs. 50, 000.
Ans: Any form of gift which is valued less up to Rs. 50,000 can be allowed to be given tax free.
Ans: The only gift received by individual at the time of marriage is not charged to tax. However, tax will be charged on occasions like birthday, anniversary, etc.
Ans: Yes, if the total amount of gift received during the year by an Individual or HUF exceeds Rs. 50, 000 it will be charged under the Income Tax Act.
Ans: Yes, the gifts received from friends will be taxable as friend is not a relative as per Income Tax Department.
