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 1st day of April, 2017-
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 :
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 –
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.
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.
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).
-Swati Srivastava, Advocate