CA Namita Gad
We receive gifts in cash, ornaments, land, car, gadgets, vouchers and many more on various occasions like on birthday, marriage, achievements and even sometimes out of gratitude too. Feel special and happy on its receipt, right? But have you ever bothered to check its taxability under Indian Income Tax Law? If not, then here are the provisions of income tax law related to gift. Some of the gifting transactions are to be taxed under the Income Tax Act, 1961 and the onus to offer such gift for tax and then to pay tax on it; is on the recipient of such gift. Remember in this article, we will be testing only those transactions for “taxability” which are having gift value exceeding Rs.50,000/- and that too received without consideration i.e. nothing is exchanged for such gift by an individual on or after October 1, 2009.
There are 3 aspects of the transaction which need to be considered in consolidation before concluding its taxability…
Let us first understand; what are those things which can be a taxable gift under the law.
1. Money i.e. cash or cheque or draft.
2. Property: The term “Property” is specifically narrated in the law. So besides those items, other gifts will not come in the purview of taxability and property includes;
i. immovable property being land or building or both;
ii. shares and securities;
iv. archaeological collections;
viii. any work of art;
ix. bullion (bullion w.e.f June 1, 2010)
Lesson: Receipt of Gift other than in Money or Property is not liable for tax.
Second aspect to be look upon is the relationship with the person gifting such money or property. Income Tax Act has excluded transactions of gift received from relatives from taxing and relative with respect to an individual includes;
i. spouse of the individual;
ii. brother or sister of the individual;
iii. brother or sister of the spouse of the individual;
iv. brother or sister of either of the parents of the individual;
v. any lineal ascendant or descendant of the individual;
vi. any lineal ascendant or descendant of the spouse of the individual;
vii. spouse of the person referred to in items (ii) to (vi)
Lesson: Receipt of Gift in Money or Property from a relative is not liable for tax.
Now coming to occasions, gift received on specified events or circumstances is excluded from taxability such as;
i. on the occasion of the marriage of the individual;
ii. under a will or by way of inheritance;
iii. in contemplation of death of the payer or donor;
iv. from any local authority;
v. 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);
vi. from any trust or institution registered under section 12AA.
Lesson: Receipt of Gift in Money or Property from a relative or from a non-relative on specified occasion/circumstances is not liable for tax.
So whenever you will be doing a taxability test for a gift transaction, go by each of these step and conclude. But it is not as simple and straight as it looks; it also includes many other aspects relating to computation and documentation; so it is always advised to consult your Chartered Accountant on receipt of gift or if possible before entering into such gifting transactions.
Sharing this knowledge is a small gift from my side to you and this is surely not taxable, so enjoy it!