Tax on Gift: Rules and Exemptions As per Income Tax Act in India
What is Gift as per Income tax Act?
Gift as per Income tax act means property (both movable and immovable) and money (cash, cheque, draft, etc) received without consideration or against inadequate consideration. Let’s understand what movable and immovable property include on which income tax provisions apply:
- Immovable property: Land or building or both (it does not include agricultural land in rural areas)
- Movable property: Shares, securities, jewellery, archaeological collection, drawing, painting, any work of art, bullion, vehicles, etc.
When are Gifts taxable?
- Gifts received are taxable if the monetary value of all gifts received without consideration by the recipient exceeds Rs.50,000. The whole amount would be taxable. For Example, Rohan received Gifts of monetary value Rs 7000 from each of his 10 friends, the whole Rs 70,000 will be taxable since the monetary value of all gifts received exceed Rs.50,000.
- However, when a gift is received against inadequate consideration, it will be taxable when the shortfall of the consideration received, exceeds Rs. 50,000. In such a case, the whole amount of shortfall will be taxable. For Example, Nisha received Rs. 10,000 each from her 10 friends. She contributed back Rs. 1000 to each of her friends. In this case, the shortfall of Rs. 70,000 will be taxable in the hands of Nisha.
- The gift would be taxable if it is in nature of capital asset in the hands of the recipient. Any gifts in the nature of stock, raw materials or consumables that can be used by the recipient in his/her business operation, will not be considered as a capital asset and thus will not be taxable.
- The gift would be chargeable to tax under the head “Income from other sources” and at normal slab rates.
When Gifts received are exempt from tax?
Under the following situations, gifts received are non-taxable in hands of recipient irrespective of monetary value:
- Gift received by an individual from relative*
- Gift received by an individual on the occasion of marriage
- Any gift received under a will or by way of inheritance
- Gift received in contemplation of death of the payer
- Gift received from any local authority (defined in clause 20 of section 10)
- Gift received from any fund, foundation, university or other educational institution, hospital or other medical institution, any trust or institution (defined in clause 23C of section 10), any trust or institution registered under section 12AA.
relative*
- Spouse of the individual
- Brother and sister (including their respective spouses) of both individual and his/her spouse
- Brother and Sister (including their respective spouse) of an individual’s father and mother
- any lineal ascendant or descendant (including their respective spouses) of the individual
- any lineal ascendant or descendant (including their respective spouses) of the spouse of the individual
Here is the summary of all the scenarios for better understanding:
| Gift | Consideration | Amount taxable |
|---|---|---|
| Money (cash, cheque, draft) | Nil | If money > 50,000; whole amount taxable |
| Immovable property | Nil | If Stamp duty value > 50,000; Stamp duty value would be taxable |
| Immovable property (as defined above) | Received which is less than stamp duty value by an amount exceeding Rs 50,000 | [Stamp duty value – consideration] would be taxable |
| Agricultural land in rural area | Nil/received | Nil |
| Movable property (as defined above) | Nil | Fair market value > 50,000; Fair market value would be taxable |
| Movable property (as defined above) | Received which is less than Fair market value by an amount exceeding Rs 50,000 | Fair market value – consideration > 50,000 Fair market value would be taxable |
| Property/money on the occasion of marriage | Nil/received | Completely exempt irrespective of value |
| Any gifts not included in definition above | Nil/received | Completely exempt irrespective of value |