A fool judges people by the gifts they give him, says a Chinese proverb. The proverb would not stand its ground in India, thanks to the taxman extending his cold fist towards gratuitous amounts dropped in your pocket.

Over the past years, India has witnessed dramatic changes in its approach towards taxing gifts. The primary legislative intent behind taxing gifts has been to check the money laundering activities, especially tackle huge sums of foreign money making its way to India, in the guise of gifts, which often turn out to be bogus.

In the initial period, taxes were collected from the donor under the Gift Tax Act, which was, however, repealed in 1998. Subsequently, while there were no explicit legislative provisions for taxing gifts, the tax authorities at their own discretion continued to scrutinise their genuineness, and in many cases, taxed such receipts in the hands of the recipient.

This had, however, led to enormous amount of litigation on the grounds that gift, being a gratuitous payment, cannot be considered as income at all and accordingly should not be taxable.

However, effective financial year 2004-05, the finance minister had brought in necessary amendments such that any gratuitous amounts (sparing a few) would be taxable as income from other sources.

The taxation of gift under income tax [Section 56(2)(x)]:

1. Cash:

If aggregate value is less than Rs.50000 than nothing will be taxable. If value exceeds Rs. 50,000, the whole amount will be taxable.

2. Movable Property as Gift:

a) Without consideration:

Where any person receives, in any previous year, from any person or persons any property other than immovable property without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property will be taxable in the hands of receiver.

b) For Inadequate Consideration:

Where any person receives, in any previous year, from any person or persons any property other than immovable property for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration.

The excess differential amount will be taxable in the hands of receiver.

3. Immovable Property as Gift:

a) Without Consideration:

Where any person receives, in any previous year, from any person or persons any immovable property without consideration and the stamp duty value of which exceeds fifty thousand rupees then in such case, the stamp duty value of such property will be taxable in the hands of receiver.

b) For Inadequate Consideration:

Where any person receives, in any previous year, from any person or persons any immovable property for a consideration, the stamp duty value of such property as exceeds such consideration, if the amount of such excess 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

The excess differential amount will be taxable in the hands of receiver.

4. Some Exempt gifts

If any gifts are received in following situations or from below mentioned people then those gifts will be fully exempt under Income Tax.

Any sum of money or any property received:

  • from any relative; or
  • on the occasion of the marriage of the individual; or
  • under a will or by way of inheritance; or
  • in contemplation of death of the payer or donor or
  • from any local authority or
  • 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 clause (23C) of section 10; or
  • from or by any trust or institution registered under section 12A or section 12AA; or
  • by any fund or trust or institution or any university or other educational institution or any hospital or other medical institution or
  • 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
  • from an individual by a trust created or established solely for the benefit of relative of the individual.
  • any compensation or other payment, due to or 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

Note: In the above-mentioned points the term Relatives means

– Spouse of Individual

– Brother & Sister of Individual

– Brother & Sister of Spouse of Individual

– Brother & Sister of either of the parents of Individual

– Any Lineal ascendants or descendants of the individual

-Any Lineal ascendants or descendants of the spouse of the individual.

Separately, though gifts to relatives are not covered, adequate precaution still needs to be exercised while gifting assets to specified relatives (such as spouse and children) in view of the specific provisions under the Indian domestic tax laws, whereby, income arising on such gifted assets continue to clubbed in the hands of the donor and be taxable in the donor’s hands.

However, the taxation of gifts received in some genuine cases such as for medication, academic help, or even occasions other than marriage, from friends, acquaintance, etc, (albeit beyond Rs 50,000) appears to be harsh and should be reconsidered by the legislators.

Disclaimer: The contents of this article are for information purposes only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

(Republished with Amendments by Team Taxguru)

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