It is widely known that gifts from relatives are tax-exempt. But what is not widely known at all is that gifts received even from non-relatives can also be completely exempt from income tax. Here is the complete run-down from a renowned tax expert. It is very common for people to receive gifts from friends and relatives. In some cases, gifts are also received from NRls. Let us consider the latest provisions of the Income Tax Act, 1961 regarding gifts, and analyse how individuals can achieve complete exemption from income tax in respect of the gifts during the current financial year. (The sections mentioned below refer to the Income Tax Act, 1961.)

Taxation of Gift

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.

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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4 Comments

  1. Shubha Banerjee says:

    “Gifts from Relatives are Tax-Exempt”. If I gift my Father XYZ rupees (a substantial amount) to his bank account will that be taxable ? Need this clarification. Is Parent treated as Relative ?

  2. Hema says:

    Hi Shireen
    A gift received by an individual from his spouse, or from his brother or sister, or from the spouse’s brother or sister, parents, or from any lineal ascendant or descendant of oneself or one’s spouse would normally be fully tax-exempt. Similarly, any gifts of any amount whatsoever received from the spouses of any of these persons would also be completely exempt from income tax.

    One can make plain Gift Deed to keep the clarity on paper work.
    One can also make the gift deed on 100Re. stamp paper with signature of two witness.This should be done if the gift amount is quite substantial.

  3. Shireen says:

    As I understand from this website there is no gift tax involved whatever the amount if you get cash gift from a relative. I would like to know what papers are required in case the tax authorities question on the validity of relationship. Please advise.

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