Gift Tax or Tax on Gift

Gifts are a way of showing  affection towards one another in today’s busy life. Specially in a  country  like India which has a diversified culture  Gifts are exchanged on numerous occasions  such as  Diwali, Raksha  Bandhan, Christmas,  Birthdays, Marriages, etc.  by Friends  and  Relatives  while for some people giving Gifts are considered as  a form of status symbol.

Exchanging gifts is not limited to social events alone. It is also popular in corporate and business circles to promote the company and increase brand awareness.

 But little did we know that giving gifts are taxable after certain amount and one needs to pay tax if limit exceeds and  It is important to know taxation involved with regards to gifts in India in order to avoid any further unplanned tax outflow.

What is a Gift and Tax levied on it ?

A Gift is Something  given voluntarily without payment in return, as to show favor toward someone, honor anoccasion, or make a gesture of assistance;

Gift can be in a form of Cash/Cheque, property such as  land or building which is immovable in nature or movable like shares, jewelry or drawings.

The Gift Tax was introduced in India in 1958, and got abolished in 1988 after which all gifts were tax free. Later in 2004, Gift tax was incorporated in the Income Tax Act.

Now, gifts received by any person or persons, are taxed from the recipients  under the head  ‘Income from other sources ‘. The provisions related to the tax are mention in Section-56(2)(x) of the Income Tax Act,1961.

Where any person receives in any previous year, from any person or persons on or after the 1^st day of April, 2017-

• a sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of aggregate value of such sum ;
• any immovable property-
• without consideration, the stamp duty value of each exceeds fifty thousand rupees, the stamp duty value of such property;
• for a consideration the stamp duty value  of the property as exceeds as such consideration, if the amount of such excess to more than the higher of the following amounts, namely-
• The amount of fifty thousand rupees; and
• The amount equal to five percent of the consideration.
• 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.
• 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.

Provisions and Calculation of Stamp duty

Stamp duty is considered while calculating  Gift tax on Immovable property as mention in clause 56(2)(x)(b). There are several reasons for the stamp duty to be at higher value  due to the time gap between the agreement fixing the consideration  and date of registration of the immovable property.

Three  conditions :

• where the date of agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are different.
• Where the amount of consideration, fully or a part thereof, has been received by way of an account payee, cheque or account payee bank draft or by electronic system through bank account, on or before the date of agreement.
• Where the value adopted or assessed by the stamp valuation authority does not exceed 105% of the consideration received.

Exemptions from Gift Tax

Certain gifts received by a person or persons attract Tax. There are also some exceptions to it. Provided that the above mentioned clause 56(2)(x) doesn’t not apply to any sum of money or any property received –

• from any relative, considered-
• Spouse of the individual
• Brother or sister of the individual
• Brother or sister of the spouse of the individual
• Brother or sister of either of the parents of the individual
• Any lineal ascendant or descendant of the individual
• Any lineal ascendant or descendant of the spouse of the individual
• Spouse of the person referred to in clauses (b) to (f)
• on the occasion of marriage of the individual.
• under a will or by way of inheritance; or
• in contemplation of death of the prayer or donor, as the case may be; or
• from any local authority as defined in the Explanation to clause (20) of section 10; 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 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 modification of the terms and conditions relating thereto.

Tax on Gifts: Abroad

Gifts received by NRI to a relative residing in India-

NRI or non-resident Indian can send gifts  for the relatives in form of cash, cheque ,items or property are not taxable within Rs. 50,000. Both giver and receiver are exempted from Gift Tax in India.

Gifts received by NRI to a non-relative residing in India-

NRI or non-resident Indian can send gifts  for the people who are not the relatives in form of cash, cheque ,items or property are not taxable within Rs. 50,000. Both giver and receiver are exempted from Gift Tax in India.

When the limit exceeds Rs. 50,000 the amount is added to the receiver’s  account and gift tax is payable by the receiver as per the income slab.

Exception :

Despite of the “relative status” if gift send by the NRI in form of cash, cheque, property or items to a resident Indian for Marriage or through will both the receiver and giver are exempted from Gift Tax.

Case Law

In  CIT vs P. Mohanakala — 2007 291 ITR 278 SC, one common donor Sampath Kumar sent several cash gifts through cheques from abroad to Srinivasan, his wife, his son, his brother, and brother’s wife, Mohanakala. These five persons received aggregate gifts to the extent of 1,79,27,703. During the course of the income- tax enquiry, they stated that payments were made by instruments issued by foreign banks and credited into the respective accounts of the five persons by negotiation through a bank in India. The assessing officer (AO) brought the entire amount to tax as unproved credits. After investigation, the Tribunal concluded that there was no love and affection between the foreign party and the recipients of gifts in India. The Tribunal upheld the assessment.

The Madras High Court decided the case in favour of the assessee (291 ITR 178). The Revenue took up the matter in appeal to the Supreme Court. The apex court held that the Madras High Court had committed an error in disturbing the concurring findings of facts given by the lower authorities. The apex court pointed out that under Section 68 of the Income-Tax Act ,1961 any sum found credited in the books of the assessee may be charged to income-tax as income if there is no satisfactory explanation about the nature and source of the credit. It referred to its own ruling in the Sumati Dayal .

(214 ITR 801 SC) case. Taxable as income

The fact that money came by way of cheques and was paid through the banking channel was not by itself of any consequence. The AO has to base his opinion on proper appreciation of material and the other attending circumstances available on the record. He has to form his opinion objectively. Application of mind is the sine qua non for forming the opinion. The Supreme Court held that the so-called foreign gifts were liable to be taxed as income.

Gifts to NRI by a Resident Indian-

To  a NRI relative, Gifts in form of cash, cheque , items or property within the value of  Rs. 50,000 are exempted from tax in India for both the sender and receiver.

To a non-relative NRI , Gifts in form of cash, cheque , items or property exceeding Rs. 50,000 are taxable and is payable by the receiver as per the conditions lies to the receiver in their country.

Similarly in the case of Marriage or Will the gifts send to a NRI irrespective of the “relative status” the tax is exempted in India for both the sender and receiver.

Tax on Money  transferred as a way of Gift

If a resident Indian is receiving money from abroad and the sender is not related or not a relative , then any amount over Rs. 50,000 (about US$ 720) will be liable to be taxed in receiver’s income. You’d have to pay income tax on the excess amount.

And if the amount exceeds Rs. 50,000 then the sender has to pay the gift tax in his country and receiver will  pay the gift tax in India.

As per RBI rules, the remittance money received from persons abroad, who are your close relatives, is treated as a tax-free gift. (refer to exemptions of gift tax clause (i) for close relatives in this article). 

Important Pointers

• Total amount received during the year from one individual to another as a gift in way of cash, cheque or draft if exceeds Rs. 50,000 will be taxable.
• If any Immovable property (without consideration )received as a gift, the stamp duty value exceeding Rs. 50,000 then the value of the stamp duty will be chargeable to tax.
• If any immovable property is received (for a consideration) which is less than the stamp value of the property by an amount exceeding Rs. 50,000/-, then the difference between stamp duty value and consideration is chargeable to tax.
• Movable properties like Shares, jewelry, archaeological collections, drawing, paintings  received (without consideration) during a year exceeds Rs. 50,000/-, the whole of aggregate fair market value of movable properties will be chargeable to tax.
• Just like in case of immovable property for consideration the movable properties like shares, securities, etc during a year exceeds Rs. 50,000/- the difference between the whole of aggregate fair market value and consideration will be chargeable to tax.
• Cash above Rs 2 Lakh exchanged as Gifts subject to Penalty from 1st April, 2017, even if the gifts are from family members.
• The maximum limit of gifts to NRI is USD250,000 in one financial year.
• Amount transferred to bank account of a resident Indian exceeding US$ 720 is Taxable.

-Swati Srivastava, Advocate