People often believe that if you receive any gifts from friends, family, or relatives on a birthday, anniversary or any other occasion is tax-free. However, the Govt. of India in the year 2004 reintroduced the Gift tax provisions under the Income Tax Act to impose a tax on receiving gifts. So, as per the Act if you receive any gifts of a value of more than INR 50,000 during the year then the gift is taxed as income in the hands of the person who receives the gift.
What is a Gift as per the Income Tax Act?
Gift as per the 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, jewelry, archaeological collection, drawing, painting, any work of art, bullion, vehicles, etc.
When are Gifts taxable?
- Gifts received in India are taxable if the monetary value of all gifts received without consideration by the recipient exceeds INR 50,000. The whole amount would be taxable. For Example, Rohan received Gifts of monetary value INR 7000 from each of his 10 friends, the whole INR 70,000 will be taxable since the monetary value of all gifts received exceeds INR 50,000.
- However, when a gift is received against inadequate consideration, it will be taxable when the consideration’s shortfall exceeds INR 50,000. In such a case, the whole amount of shortfall will be taxable. For Example, Nisha received INR 10,000 each from her 10 friends. She contributed back INR 3000 to each of her friends. In this case, the shortfall of INR 70,000 will be taxable in the hands of Nisha.
- The gift would be taxable if it is in the nature of capital assets 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 not taxable in the hands of the recipient irrespective of monetary value:
- Gift received :
- from relatives*
- On the occasion of the marriage,
- Under will/by way of inheritance.
- In contemplation of the death of the payer.
- From local authority.
- A fund, foundation, university, other educational institution, or other medical institution, hospitals, or any trust or institution defined in Section 10(23C), any trust or institution registered under section 12AA.
- 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:
|Money (cash, cheque, draft)||Nil||If money > 50,000; whole amount taxable|
|Immovable property||Nil||If the Stamp duty value is> 50,000; the 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 areas||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|
Provision Relating to Stamp Duty for Gift Tax
In order to calculate gift tax for immovable property, stamp duty value must be considered. There is a possibility that the stamp duty can be higher for reasons like the time gap between the agreement fixing the consideration and the date of registration. Hence, for calculating gift tax stamp duty value as on the date of agreement fixing the consideration must be taken into consideration if the following conditions are satisfied:
- If the consideration is paid either fully or partially via account payee cheque, bank draft, or digital mode on or before the date of agreement for the transfer
- The date of the agreement and the date of registration is different
Gifts received from relatives are not charged to tax.
Friend is not a relative as defined in the list and hence, gifts received from friends will be charged to tax (if other criteria of taxing gift are satisfied).
Gift of money: The aggregate value of cash gifts received without consideration during a financial year would be taxable as Income from Other Sources in the hands of the recipient. However, if the aggregate value of such gifts is less than Rs 50,000, then it would be exempt from tax
If both parents are earning taxable income, gifts received by a minor will be combined with income and attributed to the parent with the highest earnings.