How Are Gifts Taxed in India?
According to the Income Tax Act’s definition, a “gift” is anything that a person receives from another person or organization without having to pay for it, including cash and tangible or intangible property. Legally, the recipient of the gift is referred to as the donee, while the person or organization that gave it is known as the donor.
According to this definition, the following types of gifts are taxed in India:
- Funds received in the form of cash, cheques, drafts, bank transfers, etc.
- Immovable property, including land, structures, and residential or commercial real estate
- Tangible assets like jewellery, stocks, bonds, works of art, and sculptures, among others
What is a gift tax?
A gift tax is imposed on the transfer of property from one person to another when that person receives nothing or only a portion of the original value in return. Whether or not the donor intended the transfer to be a gift, the tax still applies.
Any sort of property that is transferred by gift is subject to the gift tax. You offer a gift if you do not anticipate receiving something of at least equal value in return and give property (including money), the use of property, or income from property. You can be making a gift if you sell something for less than it is worth or if you take out a loan with a low or no interest rate.
How are gifts taxed in India?
With the intention of levying taxes on the giving and receiving of presents under certain defined situations, the government implemented the gift tax in April 1958, which is governed by the Gift Tax Act of 1958 (the GTA). Gifts that had value were accepted in the form of cash, demand drafts, bank cheques, and other valuable items.
All gifts are now tax-free thanks to the October 1998 repeal of the GTA. However, in 2004, gift tax was brought back in a new form and included in income-tax provisions. To prevent any unintentional or ignorant tax leakage, it is crucial to have a fundamental awareness of Indian gift taxation.
Gifts received by any person from any person or individuals are subject to taxation in the recipient’s hands under the heading “Income from Other Sources” at regular tax rates, according to the law as it stands now, which was revised in 2017. What types of gifts are included and how many of them are subject to tax have been detailed below.
Section 56(2)(x) of the Income-tax Act, 1961, deals with the provisions pertaining to gift tax.
|How do you determine a gift’s taxable value?
The Income Tax Act has rules to determine the taxable value of presents, which can be used to determine how much tax you must pay when you receive a gift. The table below demonstrates how the taxable value of several kinds of monetary and non-monetary gifts is determined:
General caution: In India, presents frequently come under the tax department’s scrutiny, especially if the amount is large due to widespread tax planning employing gifts. As a result, it might be wise to keep records to prove the validity of gifts received and to provide the donor with enough funding to support the donation.
Gift tax on transfers
There are some transfers that are subject to the gift tax even when they are not gifts. Gift tax is applicable to transfers of current movable or immovable property in cash or money’s worth.
What is the tax rate on gifts?
Income Tax on Gifts: Computation & 7 Exemptions
Gift tax must be paid by the recipient of gifts (whether they are received in cash or in kind), in which case the recipient is also responsible for paying the tax. Such income would be subject to taxation under the heading of “income from other sources” in the year in which the gift is received. This money will be added to other sources of income, and the gross total income will then be determined. The gross total income will then be taxed according to the income tax slab rates.
Exemption from levy of income tax on gift
The provisions of Section 56(2)(x) of the Income Tax Act apply to income tax on gifts received by individuals or Hindu undivided families (HUFs). Gift tax will not be assessed in accordance with the provisions of this section in the following seven situations:
1. Gifts received from relatives
Gifts received from relatives are completely exempt from taxation and are not subject to income tax. To clear up any ambiguity regarding the classification of relatives, the Income Tax Act has very clearly stated that, in the case of individuals, only the following would be recognized as relatives for the purpose of claiming exemption from payment of gift tax:
- The individual’s spouse
- The person’s brother or sister
- The brother or sister of the person’s spouse
- The person’s brother or sister from either of their parents
- Any linear descendent or ancestor of the person
- Any linear ascendant or descendent of the individual’s spouse
- The spouse of the aforementioned individual
- In the case of the HUF, every member would be regarded as a relative.
- The amount of presents that can be received without being subject to the gift tax is not capped. Regardless of their value, presents received from family members are not subject to the gift tax.
2. If all gifts received have a combined value of less than Rs. 50,000
If the total amount of gifts received from a person or persons (aside from the relatives mentioned above) in any fiscal year does not exceed Rs. 50,000, then the gifts are not subject to gift tax. The full gift received, however, is taxable as income from other sources if the value of the presents received exceeds Rs. 50,000.
For instance, Mr. A receives gifts from Mr. B and Mr. C totaling Rs. 30,000 and Rs. 10,000, respectively. Since the total value of the gifts received is less than Rs. 50,000, no tax would be assessed in this situation.
However, if Mr. A received gifts from Mr. B worth Rs. 40,000 and from Mr. C worth Rs. 20,000, income tax would need to be paid on those gifts because the total value exceeds Rs. 50,000. In this scenario, gift tax would be assessed on the total amount, or Rs. 60,000.
3. On the occasion of the person’s marriage
Gifts that a person receives on his own marriage are entirely excluded from the application of the Gift Tax. Additionally, it has been made clear that a person’s gifts received for his or her own marriage, not the marriage of their son, daughter, brother, or sister, are exempt.
4. Gift tax on acquired property
The following is how gift tax would be applied on assets received in kind:
- If a gift is accepted without any payment of consideration from the recipient, the property’s fair market value or stamp duty value would be taxed (provided the stamp duty value exceeds Rs. 50,000).
- If the recipient of the gift pays part of the consideration and the discrepancy between the part payment and the fair market value or stamp duty value exceeds Rs. 50,000, the difference will be taxable.
The fair market value would be taken into account for mobile goods, and the stamp duty value would be taken into account for immovable properties.
The definition of property includes the following:
- Immovable property is land, abuilding, or both
- Shares and securities
- Archaeological collections
- Any other work of art
Only in the cases of the aforementioned properties will taxes be assessed on property acquired as a gift. As a result, there would be no tax imposed on any gifts of property that were not included above. Automobiles, laptops, cell phones, and other similar items are examples of such properties that are exempt from gift tax.
5. Gifts received in accordance with a will, as an inheritance, or in anticipation of the payer’s passing
Any money acquired by a will, as an inheritance, or in anticipation of the payer’s passing away is completely exempt in the hands of the recipient. In this situation, there is no upper limit, and the entire donation received is regarded as being tax-free.
6. Gifts from any local authority, as specified by Section 10(20)
7. Donations received from any trust or institution mentioned in Section 10(23C), any fund or foundation, university, hospital, or other educational institution, or any other medical facility, as well as gifts from any fund or institution registered under Section 12AA
Gains from assets given or received as gifts
In the hands of the person giving the gift
Delivering a present to someone else would not be considered a transfer, as a result, the transferor—person giving the gift—would not experience any capital gains. Therefore, the individual giving the gift would not be obligated to pay tax at the time of gifting.
In the hands of the person receiving the gift
- The price of acquisition in the hands of the recipient would be the same as the price of acquisition in the hands of the giver.
- The time spent holding the gift in the hands of the giver is also factored into the calculation of the holding duration.
What amount of gifts in India is tax-free?
India is a land of celebrations, and giving gifts is ingrained in our way of life. But even a small gift comes with a lot of tax compliance requirements that must be met. According to government regulations, any gift in the form of money, a cheque, real estate, a structure, or other property that exceedsRs. 50,000 within a fiscal year is taxable in the hands of the recipient.
However, there are a few major exceptions that people should be aware of.
First and foremost, according to experts, the presenter should make sure the gift is real and doesn’t contain any black money or money laundering. Additionally, they suggest that larger presents be registered through a deed by paying particular duties, which vary from state to state. This is suggested because, if the tax authorities conduct a future investigation, the individual must be able to demonstrate that the transaction was truly a gift and not a sale-and-purchase transaction.
A gift is not taxable in the hands of the provider when it comes to tax compliance, but as the recipient, you must be aware of specific classifications. As was already established, gifts received by anyone are subject to tax, but there are several exceptions.
According to government regulations, some close relatives, including husbands and wives, children (including stepchildren and adopted children), fathers and mothers, daughters and son-in-law, brothers and sisters (and their spouses), are excluded from paying tax on gift receipts. Cousins, nephews, nieces, and stepbrothers and sisters are not considered “relatives” under this rule.
The recipient of a gift from a non-relative, however, must pay tax if the present’s value reaches Rs. 50,000 within a calendar year. There are, however, certain exceptions to this rule as well.
1. Are both gifts in kind and in cash taxable?
All gifts, whether those in cash, gold, real estate, fine art, or any other valuable possession, are subject to taxation. The same would not be taxable, nevertheless, if the cash sum or value of the gift in kind is less than Rs. 50,000.
2. Are gifts that a minor receives taxable?
If both parents make taxable income, gifts received by a minor will be taken into account and combined with income. The parent with the greatest income will also be included in the group.
3. Are gifts received by a relative who is a non-resident Indian (NRI) taxable?
Gift tax is not applied to gifts received by NRI relatives.
4. Is a spouse’s gift exempt?
Gifts from a spouse are typically excluded from gift tax, but any income received as a result of the gift will be taxed along with the recipient’s other income, if any.
5. What about money received as a gift?
Income received as a gift is not exempt from taxation under the laws of income taxation; rather, it is considered individual income and is subject to taxation.
The tradition of giving and receiving presents is deeply ingrained in Indian culture. While the value of such gifts is typically negligible, there are occasional instances where gifts like real estate, jewels, works of art, etc. can have a significant financial worth. The Gift Tax Act was initially introduced in 1958 to offer precise criteria regarding whether gifts are taxable and the rate at which gift tax would be payable. However, this law was later revoked in 1998.
All gifts were tax-free after the Gift Tax Act of 1958 was abolished, regardless of their value, until new gift taxation regulations were reinstated in 2004 as part of the Income Tax Act. In 2010, additional changes were made to these rules governing the taxes on gifts. Many of us are perplexed by the tax implications of the gifts we receive as a result of the numerous modifications made to the laws governing presents under the tax code.
The giver was responsible for paying the tax on gifts under the now-repealed Gift Tax Act of 1958. But according to current Income Tax regulations, gift taxation is a type of direct tax, and the donee, or recipient of the gift, is in charge of declaring and paying the necessary taxes.
Making accurate income tax declarations can be aided by having a thorough understanding of how India’s gift taxation system operates. It can also assist you in making plans to reduce your tax liability prior to filing income tax returns. Long-term, this will not only assist you in avoiding receiving a notification from the Income Tax Department for unpaid taxes, but it will also enable you to enjoy your presents with only a slight rise in your income tax due.
Based on our conversation thus far, we anticipate that this blog will be useful to all readers who are interested in learning the basics of gift taxation in India.
- Any sort of property that is transferred by gift is subject to the gift tax.
- What types of gifts are included and how many of them are subject to tax have been detailed below.
- Section 56(2)(x) of the Income-tax Act, 1961, deals with the provisions pertaining to gift tax.
- What is the tax rate on gifts?
- Gifts received from relatives Gifts received from relatives are completely exempt from taxation and are not subject to income tax.