by India is a country of close-knitted families and having a lot of reasons to celebrate owing to its diversified culture, customs and religion. Numerous occasions arise where gifts are exchanged. In fact, gifting each other is a symbol of love and affection and can also be a symbol of social status.
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.
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.
As per section 56(2)(x) of Income Tax Act, gifts received by an individual or a hindu undivided family in the form of money or property (without consideration or with inadequate consideration) is taxable as income under the head Income from Other Sources provided such income falls under five categories mentioned below and such income does not fall in the exempted category.
Property
Property means the following capital assets of the recipient:
1) Immovable property being land or building or both
2) Shares and securities
3) Jewellery
4) Archaeological collection
5) Drawings
6) Paintings
7) Sculptures
8) Any work of art
9) Bullion
| Category | Criterion for taxability | Taxable income | For ceiling limit of Rs.50,000 whether a single or all transactions of PY will be considered |
| 1. Any sum of money (Gift in cash/cheque/ draft other than loan) | Aggregate amount received from one or more persons during the previous year (PY) exceeds Rs.50,000 | Whole of such aggregate amount | All transactions |
| 2. Immovable property without consideration | Stamp duty value of the property exceeds Rs.50,000 | Stamp duty value | Single transaction |
| 3. Immovable property for a consideration which is less than stamp duty value | Property is received for a consideration which is less than stamp duty value by an amount exceeding Rs.50,000 | Difference between the stamp duty value and the consideration is more than the higher of the following amounts:
(i) the amount of fifty thousand rupees; and (ii) the amount equal to five per cent of the consideration Then excess differential amount will be taxable |
Single transaction |
| 4. Movable property without consideration | Aggregate fair market value (FMV) of properties received exceed Rs.50,000 | Whole of such aggregate FMV | All transactions |
| 5. Movable property for a consideration less than FMV | Property is received for a consideration which is less than aggregate FMV by an amount exceeding Rs.50,000 | Difference between aggregate FMV and the consideration | All transactions |
Stamp duty value
It means the value adopted or assessed or assessable by any authority of the Central/State Government for the purpose of payment of stamp duty in respect of an immovable property.
Exempted category
While computing the aggregate limit of Rs.50,000 in any of the five categories above, the following shall not be considered:
1) Money/property received from a relative
2) Money/property received on the occasion of the marriage of the individual
3) Money/property received by way of will/inheritance
4) Money/property in contemplation of death of the payer
5) Money/property received from a local authority
6) Money/property received from any fund/foundation/university/other educational institution/hospital/ medical institution/any trust/institution referred u/s 10(23C)
7) Money/property received from charitable institute registered u/s 12AA
8) Money/property received by way of transaction not regarded as transfer under clause (i) or clause (iv) or clause (v) or clause (vi) or clause (via) or clause (viaa) or clause (vib) or clause (vic) or clause (vica) or clause (vicb) or clause (vid) or clause (vii) of section 47; or
9) Money/property received from an individual by a trust created or established solely for the benefit of relative of the individual.
10) Money/property received by any person, by whatever name called, in connection with the termination of his employment or the modification of the terms and conditions relating thereto
Relative
The word relative includes the following:
| Relative | In case the taxpayer is X |
| 1) Spouse of the individual | Mrs. X |
| 2) Brother or Sister of the individual | Brothers or Sisters of X |
| 3) Brother or Sister of the spouse of the individual | Brothers or Sisters of Mrs. X |
| 4) Brother or sister of either of the parents of the individual | Brothers or Sisters of father or mother of X |
| 5) Any lineal ascendant or descendant of the individual | Lineal ascendant/descendant of X |
| 6) Any lineal ascendant or descendant of the spouse of the individual | Lineal ascendant/descendant of Mrs. X |
| 7) Spouse of the person referred to in (2) to (6) | Spouse of the aforesaid persons |
