The Indian Culture has thousands of years of history as well as various traditions attached to it. It is also a birth place of many religions like, Hinduism, Sikhism, Buddhism, Jainism etc. Beside, India is a country with diversified culture where each occasion is a reason to celebrate and show love and affection to close family members and friends. Gifts are exchanged on numerous occasions like Diwali, Raksha Bandhan, Christmas New Year etc. In addition to this, some people also consider Gifting as a status symbol. But little did you know that these gifts are taxable after a certain limit and one needs to pay income tax on gifts received by them. Therefore the Government of India introduced Gift Tax in April, 1958 known as Gift Tax Act, 1958. This Act was introduced with an objective to impose tax on receiving and giving gifts under certain specific circumstances. It is important to know taxation involved with regards to gifts in India in order to avoid any further unplanned tax outflow.
Gift means, amount of money given in cash/cheque, property including immovable like, land or building or both, shares, jewelry or drawings.
Gift Tax Act:
Tax was levied from the person who give the Gift of more than Rs. 30,000, as per Gift Tax Act, 1958. However, it was later abolish in the year 1988. Thereafter, it was re introduced under the Income Tax Act, 1961 under section 56(2)(V), for taxing gifts in the hand of recipient. Again it was amended in the year 2017, gifts received by any person are taxed in the hands of recipient under the head “ Income from Other Sources” at normal tax rates.
Taxability of gifts under the Income Tax Act.
As per the current tax law, any person (done/recipient) receiving a sum of money, or an immovable property or any other specified property from any other person(donor) without consideration or for an inadequate consideration i.e. less than the fair market value of the property or stamp duty value in case of an immovable property, is liable to taxed on the value of such gift.
In the above context the “Property” includes immovable property being land or building or both, shares and securities, Jewellary, archaeological collections, drawings, paintings, sculptures, any work of art and bullion, etc.
We know that under every Act, there are taxable and exempted items, like wise exemptions have been carved out for certain specified categories of persons / recipients from preview of taxation from gift. Companies under certain specified schemes of reorganization too have been exempted from the above incidence of tax.
Exemption from taxation:
As per Section 56(2)(X), where any person receives in any previous year, from any person or persons on or after the 1st Day of April, 2017,-
(i) any sum of money, without consideration, the aggregate value of which exceeds Rs. 50,000, the whole of the aggregate value of such sum.
Example: Mr. A, give a gift of Rs. 49,000 to Mr. B, this is exempt, but if Mr. A, give gift of Rs. 51,000 to Mr. B, full amount of Rs. 51,000 is chargeable to tax.
(ii) any immovable property,-
(a) Without consideration, the stamp duty value of which exceeds Rs. 50,000, the stamp duty vale of such property,
(b) for a consideration, the stamp duty value of such property as exceeds such consideration, if the amount of such exceed is more than the higher of the following amounts,
-
- The amount of Rs. 50,000, and
- The amount equal to 10% ( from 1.4.2021 5%) of the consideration
(iii) any property, other than immovable property,-
(a) without consideration, the aggregate fair market value of which exceed Rs. 50,000, the whole of the aggregate fair market value of such property;
(b) for a consideration which is less than the aggregate fair market value of such property by an amount exceeding Rs.50,000, the aggregate fair market value of such property as exceeds such consideration:
This clause shall not apply to any sum of money or any property received-
(a) from any relative; or
(b) under the occasion of the marriage of the individual; or
(c) under a WILL or by inheritance; or
(d) in contemplation of death of the payer or donor, as the case may Be; or
(e) from any local authority; or
(f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in Section 10(23C);
(g) from or by any trust or institution registered section 12A,12AA, 12AB; or
(h) from an individual by a trust created or established solely for the benefit of relative of the individual; or
(i) from such class of persons and subject to such conditions, as may be prescribed; or
(j) any compensation or other payment, due to or received by an person, by whatever named called, in connection with the termination of his employment or the modification of the terms and condition related thereto.
Gift from Any Relative:
Gift received from relatives is fully exempt from levy of tax and no income tax would be levied on such gift. To remove any doubt regarding the classification of relatives, the Income Tax Act has very clearly laid down that in case of individual, only following will be treated as relative for the purpose of claiming exemption:
| List of Male Donors | List of Female Donors |
| Father | Mother |
| Brother | Sister |
| Son | Daughter |
| Grand Son | Grand Daughter |
| Husband | Wife |
| Sister’s Husband | Brother’s wife |
| Wife’s Brother | Wife’s Sister |
| Husband’s Brother | Husband’s Sister |
| Mother’s Brother | Mother’s Sister |
| Mother’s Sister’s Husband | Wife’s Brother’s Wife |
| Father’s Brother | Father’s Brother’ wife |
| Father’s Sister’s Husband | Father’s Sister |
| Grand Father | Grand Mother |
| Daughter’s Husband | Son’s Wife |
| Spouse’s Father | Spouse’s Mother |
| Spouse’s Grand Father | Spouse’s Grand Mother |
| Husband’s Brother’s Wife | Mother’s Brother’s Wife |
HUF give gift to its members is also exempt
Before making gift to any person look at the above and decide accordingly.
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If the NRI spouce transfers money from dubai to his nri spouce in her NRE account, what will be the income tax treament to this transaction in FY 2017-18