Gifts are the most common way of expressing our love and affection towards our loved ones family and friends, however many a time gifts can also be a part of tax planning/tax evasion. While tax planning done within the framework of law is permissible, tax evasion is prohibited and can be penalized.
What is considered as a Gift?
When any sum of money/property is received by an individual/HUF without any consideration or inadequate consideration out of natural love and affection it is considered as a gift.
Gifts can be in cash or kind.
Brief Background of Taxation of Gift before we discuss the taxability of gifts?
The Government introduced gift tax in April 1958 regulated by Gift Tax Act, 1958 (The GTA) with an objective to impose taxes on giving and receiving gifts under certain specific circumstances. Gifts in the form of cash, demand draft, bank cheques, or anything having value were covered.
However, the GTA was abolished in October 1998 and made all gifts tax-free. But, Gift Tax was reintroduced in a new form and included in the Income-tax provisions in 2004. It is highly important to have a basic understanding of taxation on gifts in India to avoid any ignorant /unplanned tax outflow.
Is a gift taxable under the Income Tax Act?
There are a few cases when the certain transactions are considered as gift and are taxable under the income tax act
Scenario 1: Gift of Money
- a) If aggregate amount of sum of money received
- b) without any consideration
- c) from one or more person
- d) during a financial year exceeds Rs 50000,
the whole of such aggregate value is chargeable to tax.
For eg: if you receive Rs 30000 from one person and Rs 25000 from another person as a gift in a given financial year then the entire amount of Rs 55000 will be chargeable to tax.
Scenario 2: Gift of Property
- Without Consideration
- a) If any immovable property is received
- b) without any consideration
- c) the stamp duty value of which exceeds Rs 50000
The stamp duty value is chargeable to tax.
- Without Consideration
- a) If any immovable property is received for a consideration and
- b) Stamp duty value exceeds 110% of the consideration and
- c) The difference between stamp duty value and consideration is more than Rs. 50000
If the above conditions are fulfilled the difference of stamp duty value and the consideration is chargeable to tax
Scenario 3: Gift of Immovable Property
- Without Consideration
- If a moveable property received as gift
- without consideration
- If the aggregate fair market value of such gift exceeds Rs 50,000
The whole of aggregate fair market value of movable property or properties is chargeable to tax.
- Inadequate Consideration
- In case of immovable property received as gift with consideration less than its fair market value
- the difference between the consideration and fair market value exceeds Rs 50000
- then the difference amount is chargeable to tax.
But who is responsible for paying tax on gift?
The recipient/receiver of the gift is liable to disclose the same under Income from Other Sources in his/her Income tax return and pay tax on the same.
Are all the gifts irrespective of when they are received termed as taxable?
No, all the gifts are not taxable, some of the gifts as listed below are exempt from Income tax
- Gifts received from anyone upto Rs 50000/- in a single financial year
- Gifts from specified relatives irrespective of the amount received is exempt from tax
Specified relatives for the purpose of gift are as below:
Spouse of the individual
Brother/Sister of the individual
Brother/Sister of the spouse of the individual
Brother/Sister of either of the parents of the individual
Any Lineal ascendant/descendant of the individual
Any Lineal ascendant/descendant of the spouse of the individual
Spouse of the person referred to in points b to f
- Gifts given in contemplation of marriage of the recipient.
- Gifts given in contemplation of the death of the donor and gifts given under a will or inheritance.
- Property received from a local authority as defined under section 10(20) of the Income-tax Act.
- Property received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C).
- Property received from a trust or institution registered under section 12AA
- Money/property received by way of transactions not considered as transfer under section 47
Content is taken from the- AAGC.
Chartered Accountant firm in Gurgaon, India
