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Gift Tax

Gift Tax in India

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.

Gift Definition

Amount of money given in cash/cheque, property which is immovable such as land or building or any movable property like shares, jewelry or drawings.

Gift Tax Act

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 coveredMonetary thresholdQuantum taxable
Any amount of money without consideration Sum > 50,000Total 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 considerationStamp 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)

Source: incometaxindia.gov.in/Acts/Income-tax%20Act,%201961/2014/102120000000037175.htm

Provisions relating to Stamp Duty

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:

Computing Stamp Duty

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.

Gift Tax Exemptions

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 DonorOccasion 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 personMarriage of an Individual
Any personAny personUnder a will or by way of inheritance
Any personIndividualIn contemplation of death of donor or payer
Any personLocal authority – Panchayat, Municipality, Municipal Committee and District Board, Cantonment Board NA
Any personAny 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 personAny 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 personNA
Members of HUFHUFAny distribution of capital assets on total or partial partition of a HUF
Trust created or established solely for the benefit of relative of the IndividualIndividualNA

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.

Frequently Asked Questions

How are Gifts Taxed?

Any gift in form of cash, cheque, land, building or property in taxable if it exceeds more than Rs. 50, 000.

How much money can you give to a family member without being taxed?

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.

Is gift tax abolished in India?

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.

Do I have to pay taxes on money gifted to me?

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)

Do I need to declare a gift as income?

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.

How do you avoid gift tax?

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.

How much are you allowed to give away in a year tax free?

Any form of gift which is valued less up to Rs. 50,000 can be allowed to be given tax free.

Are there any occasions apart from marriage in which monetary gift received by an Individual will not be charged to tax?

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.

Are any gifts from abroad in monetary form taxable?

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.

Are gifts received from friends taxable?

Yes, the gifts received from friends will be taxable as friend is not a relative as per Income Tax Department.

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