A very common and frequent question running in the mind of taxpayers is the tax ability of gifts. In this part, an effort has been made to discuss the various provisions relating to tax ability of gift received by an individual or a Hindu Undivided Family (HUF) under Income Tax Act.

1. Monetary Gifts: If the following conditions are satisfied then any sum of money received without consideration (i.e., monetary gift, may be received in cash, cheque, draft, etc.) by an individual/ HUF will be charged to tax:

  • Sum of money received without consideration; and
  • The aggregate value of such sum of money received during the year exceeds Rs. 50,000.

Cases in which sum of money received without consideration, i.e., monetary gift received by an individual or HUF is not charged to tax:

  1. Money received from relatives.
  2. Money received on the occasion of the marriage of the individual.
  3. Money received under will/ by way of inheritance.
  4. Money received in contemplation of death of the payer or donor.
  5. Money received from a local authority [as defined in Explanation to section 10(20) of the Income-tax Act].
  6. Money received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C).
  7. Money received from a trust or institution registered under section 12AA.
  8. Share received as a consequences of demerger or amalgamation of a company under clause (vid) or clause (vii) of section 47, respectively.
  9. Share received as a consequences of business reorganization of a co-operative bank under section 47(vicb).

Key Points:

  • Marriage of the individual is the only occasion when monetary gift received by him will not be charged to tax. Hence, monetary gift received on occasions like birthday, anniversary etc. will be charged to tax
  • Friend is not a ‘relative’ and hence, gift received from friends will be charged to tax (if other criteria of taxing gift are satisfied).
  • If the aggregate value of monetary gift received during the year by an individual or HUF exceeds Rs. 50,000 and the gifts are not covered under the exceptions discussed in earlier part, then gifts whether received from India or abroad will be charged to tax.
  • Once the aggregate value of gifts received during the year exceeds Rs. 50,000 than all gifts are charged to tax

Illustrations:

1. Kumar received Rs. 1,84,000 from his friend residing in Canada.

Tax Treatment: Rs. 1,84,000 received from his friend will be fully taxed because friend is not covered in the definition of ‘relative’ and amount exceeds Rs. 50,000/-

2. Kumar received Rs. 25,200 from his elder brother residing in Delhi.

Tax Treatment: Rs. 25,200 received from elder brother will not be charged to tax because elder brother is covered in the definition of ‘relative’.

3. Kumar received Rs. 84,000 from his friend residing in Delhi (received on the occasion of birthday of Mr. Kumar).

Tax Treatment: Birthday is not covered in the list of prescribed occasion on which gift is not charged to tax, hence Rs.84,000 received on the occasion of birthday will be fully taxed.

4. During the financial year 2015-16, Mr. Raja received following gifts from his friends:

  • 25,000 on 1-5-2014 (being his birthday)
  • 18,000 on 20-12-2014

What will be the tax treatment of above gifts?

Tax Treatment: Sum of money received without consideration (i.e. gift) by an Individual or a HUF from any person other than relative (meaning of relative has been discussed earlier) and otherwise than on prescribed occasions (as discussed earlier) is charged to tax, if the aggregate amount of such gift received during the year exceeds Rs. 50,000.

Friends are not covered in the definition of relative. Further, birthday is not covered in the list of prescribed occasion on which gift is not charged to tax and hence, gift received from friends will be charged to tax. However, nothing will be charged to tax, if the aggregate amount of gift received during the year does not exceed Rs. 50,000.

The aggregate amount of gift received by Mr. Raja during the year amounts to Rs. 43,000 (Rs. 25,000 + Rs. 18,000) which is below Rs. 50,000, hence, nothing will be charged to tax in the hands of Mr. Raja.

Suppose, if in the given case, the amount of second gift is Rs. 28,000 instead of Rs.18,000, then the aggregate amount of gift will come to Rs. 53,000 (Rs. 25,000 + Rs. 28,000). In this case, entire amount of Rs. 53,000 will be charged to tax in the hands of Mr. Raja

2. Moveable Property: The taxability of gift received in form of Moveable property can be classified as follows:

1) Specified movable properties received without consideration, it can be termed as ‘gift of movable property’.

2) Specified movable properties received at a reduced price (i.e. for inadequate consideration), it can be termed as ‘movable property received for less than its fair market value’.

a) Specified movable properties received without consideration, it can be termed as ‘gift of movable property’:

If the following conditions are satisfied then value of prescribed movable property received by an individual or HUF will be charged to tax:

1) Prescribed movable property is received without consideration (i.e., received as gift); and

2) The aggregate fair market value of such property received by the taxpayer during the year exceeds Rs. 50,000.

b) Specified movable properties received at a reduced price (i.e. for inadequate consideration), it can be termed as ‘movable property received for less than its fair market value’:

If the following conditions are satisfied then prescribed movable property received by an individual or HUF will be charged to tax:

1) Prescribed movable property is acquired by an individual or HUF; and

2) The aggregate fair market value of such properties acquired by the taxpayer during the year exceeds the consideration paid for these properties by Rs. 50,000. In other words, the aggregate fair market value of all such properties is higher than the consideration paid and the difference is more than Rs. 50,000.

Key Points:

♠ In case the prescribed movable property is received without consideration, the fair market value will be treated as income of the receiver.

♠ In case the prescribed movable property is received at reduced price, excess of fair market value over the consideration will be treated as income of the receiver.

♠ Prescribed movable property means

1. Shares/securities,

2. Jewellery,

3. Archaeological collections,

4. Drawings, paintings, sculptures or any work of art and bullion, being capital asset of the taxpayer.

♠ Considering the above definition, nothing will be charged to tax in respect of gift of any item being a movable property other than covered in the above definition, e.g., Nothing will be charged to tax in respect of a television set received as gift, because a television set is not covered in the definition of prescribed movable property.

Cases in which prescribed movable property received i.e., received as gift by an individual or HUF is not charged to tax:

1. Moveable Property received from relatives.

2. Moveable Property received on the occasion of the marriage of the individual.

3. Moveable Property received under will/ by way of inheritance.

4. Moveable Property received in contemplation of death of the payer or donor.

5. Moveable Property received from a local authority [as defined in Explanation to section 10(20) of the Income-tax Act].

6. Moveable Property received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C).

7. Moveable Property received from a trust or institution registered under section 12AA.

Illustrations:

1. Raja received Shares received from his father, the fair market value(i.e. value as per stock exchange) of the shares on the date of gift was Rs. 2,84,000

Tax Treatment: Nothing will be charged to tax in respect of shares received from his father, since father comes under the definition of the term ‘relative’.

2. Raja received Jewellery received from his friend, the fair market value of the jewellery is Rs. 84,000.

Tax Treatment: Friend is not covered in the definition of relative and hence, in respect of jewellery received from his friend, the fair market value, i.e., Rs. 84,000 will be charged to tax in the hands of Mr. Raja.

3. Raja received Jewellery received from his friends and relatives on the occasion of his marriage, the fair market value of jewellery is Rs. 2,52,000

Tax Treatment: Marriage is covered in the list of specified occasions, and hence, nothing will be charged to tax in respect of jewellery received from his friends and relatives on the occasion of his marriage.

4. An individual received gift of jewellery from his friends. The total value of jewellery received during the year as gift from all the friends amounted to Rs. 84,000. What will be the tax treatment of gift in this case?

Tax Treatment: If the aggregate fair market value of prescribed movable property received by an individual or HUF without consideration during the year exceeds Rs. 50,000, then the total value of such properties received during the year without consideration will be charged to tax. In this case the total value of jewellery received during the year exceeds Rs. 50,000 and hence, Rs. 84,000 will be charged to tax.

5. Raja purchased Gold jewellery for Rs. 1,84,000, the fair market value of gold jewellery is Rs. 2,84,000 and Bullion for Rs. 5,50,000, the fair market value of the bullion is Rs. 6,00,000.

Tax Treatment: Gold jewellery and bullion are covered in the definition of specified movable property. The fair market value of gold jewellery is Rs. 2,84,000 and of bullion is Rs.6,00,000. The purchase price of gold jewellery is Rs. 1,84,000 and that of bullion is Rs. 5,50,000. It can be observed that both the properties are acquired for less than its fair market value. The excess of fair market value over the purchase price will amount to Rs. 1,50,000 (Rs. 1,00,000 for gold jewellery and Rs. 50,000 for bullion) which is more than Rs. 50,000. Hence, the entire excess of fair market value over purchase price i.e. Rs. 1,50,000 will be charged to tax in the hands of Mr. Raja. It will be charged to tax under the head “Income from other sources”.

6. Raja purchased Motor car purchased for Rs. 1,52,000, the fair market value of car is Rs. 2,52,000

Tax Treatment: Motor car does not come under the definition of prescribed movable property, hence, nothing will be taxed in respect of purchase of motor car.

7. On 1-4-2015, Mr. Kumar purchased shares from Mr. Raja for Rs. 84,000. The fair market value of the shares i.e. value as per price quoted in stock exchange is Rs. 1,00,000. Further, on 1-7-2015, he acquired gold jewellery from Mr. Rajkumar for Rs. 25,200. The fair market value of jewellery is Rs. 50,400. Mr. Kumar is confused regarding the tax consequences arising in respect of above items purchased by him. Advise him in this regard.

Tax Treatment: The tax treatment of various items acquired by Mr. Kumar will be as follows:

  • The fair market value of the share is Rs. 1,00,000 and shares are acquired for Rs. 84,000, thus, the excess of fair market value over purchase price will come to Rs.16,000.
  • The fair market value of jewellery is Rs. 50,400 and it is acquired for Rs. 25,200, thus, the excess of fair market value over purchase price will come to Rs. 25,200.

The total of the excess of fair market value over purchase price amounts to Rs. 41,200 (Rs. 16,000 for shares + Rs. 25,200 for jewellery) which is below Rs. 50,000 and hence, nothing will be charged to tax in the hands of Mr. Kumar.

Suppose, if in the given case, the fair market value of shares is Rs. 1,84,000 instead of Rs. 1,00,000, then the aggregate of excess of fair market value of shares and gold jewellery will amount to Rs. 1,25,200, (Rs. 1,00,000 excess fair market value of shares + Rs. 25,200 excess fair market value of gold jewellery). The excess of fair market value over purchase price exceeds Rs. 50,000 and hence, entire excess of Rs. 1,25,200 will be charged to tax as income from other sources.

3. Immoveable Property: The taxability of gift received in form of Immoveable property can be classified as follows:

(a) Immovable properties received without consideration, it can be termed as ‘gift of immovable property’.

(b) Immovable properties acquired at a reduced price (i.e. for inadequate consideration), it can be termed as ‘immovable property received for less than its stamp duty value’.

(a) Immovable properties received without consideration, it can be termed as ‘gift of immovable property’:

If the following conditions are satisfied than immovable property received without consideration by an individual or HUF will be charged to tax:

  1. Immovable property, being land or building or both, is received by an individual/HUF; and
  2. The immovable property is a capital asset within the meaning of section 2(14) for such an individual or HUF; and
  3. The stamp duty value of such immovable property received without consideration exceeds Rs. 50,000.

(b) Immovable properties acquired at a reduced price (i.e. for inadequate consideration), it can be termed as ‘immovable property received for less than its stamp duty value’:

If following conditions are satisfied, then immovable property received by an individual or HUF for less than its stamp duty value will be charged to tax:

  1. Any immovable property is acquired by an individual or a HUF.
  2. The immovable property is a ‘capital asset’ within the meaning of section 2(14) of the Act for such individual or HUF.
  3. Such property is acquired for a consideration but the consideration is less than the stamp duty value and the difference exceeds Rs. 50,000

In above case the excess of stamp duty value over the purchase price of the property will be treated as income of the purchaser.

Cases in which immovable property received i.e., received as gift by an individual or HUF is not charged to tax:

  1. Property received from relatives.
  2. Property received on the occasion of the marriage of the individual.
  3. Property received under will/ by way of inheritance.
  4. Property received in contemplation of death of the payer or donor.
  5. Property received from a local authority [as defined in Explanation to section 10(20) of the Income-tax Act].
  6. Property received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C).
  7. Property received from a trust or institution registered under section 12AA.

Key Points:

  • Gift (i.e. immovable property received without consideration) received only on the occasion of marriage of the individual is not charged to tax. Apart from marriage there is no other occasion when gift received by an individual is not chargeable to tax. Hence, immovable property received on occasions like birthday, anniversary, etc., without any consideration will be charged to tax.
  • Friend is not a relative as defined in the above list and hence, gift received from friends will be charged to tax (if other criteria of taxing gift are satisfied).
  • If the conditions discussed in earlier part (regarding the taxability of gift of immovable property) are satisfied, then gift of immovable property will be charged to tax whether the property is located in India or abroad.

Illustrations:

1. An Individual received a gift of flat from his friend. The stamp duty value of the flat is Rs. 84,000.

Tax Treatment: Stamp duty value of property received as gift exceeds Rs. 50,000, hence, the entire stamp duty value of property, i.e., Rs. 84,000 will be charged to tax

2. On 1-5-2015, Mr. Kumar gifted his house to his friend Mr. Raja. The market value of the building was Rs. 8,40,000 and the value of the building adopted by the Stamp Valuation Authority for charging stamp duty was Rs. 9,00,000.

Tax Treatment: the property is a capital asset for Mr. Raja, the property is received from his friend (friend is not covered in the definition of relative), property is no received on any specified occasions and the stamp duty value of the property exceeds Rs. 50,000. In other words, all the conditions required to tax the gift are satisfied and hence the stamp duty value of the property i.e. Rs. 9,00,000 will be charged to tax in the hands of Mr. Raja. It will be charged to tax under the head “Income from other sources”.

3. On 1-4-2015, Mr. Raja (a salaried employee) purchased a building from Mr. Kumar for Rs. 25,20,000. The value of the building adopted by the Stamp Valuation Authority for charging stamp duty was Rs. 26,00,000

Tax Treatment: property is a capital asset for Mr. Raja. The stamp duty value adopted by the Stamp Valuation Authority for charging stamp duty is Rs. 26,00,000 and the property is purchased for Rs. 25,20,000 i.e. for less than the stamp duty value, hence, the above discussed provision will apply and the difference of Rs. 80,000 (Rs. 26,00,000 less Rs. 25,20,000) will be treated as income of Mr. Raja

Illustrations:

4. On 1-4-2015, Mr. Kumar (a salaried employee) purchased a building from Mr. Vipul for Rs. 25,40,000. The value of the building adopted by the Stamp Valuation Authority for charging stamp duty was Rs. 25,50,000.

Tax Treatment: The property is a capital asset for Mr. Kumar. The stamp duty value adopted by the Stamp Valuation Authority for charging stamp duty is Rs. 25,50,000 and the property is purchased for Rs. 25,40,000. The property is purchased for less than the stamp duty value, but the difference is of Rs. 10,000 only i.e. less than Rs. 50,000 and hence, nothing will be charged to tax in the hands of Mr. Kumar in respect of purchase of the property for less than the stamp duty value.

Definition of Relative: Relative for this purpose means:

1. In case of an Individual

(a) Spouse of the individual;

(b) Brother or sister of the individual;

(c) Brother or sister of the spouse of the individual;

(d) Brother or sister of either of the parents of the individual;

(e) Any lineal ascendant or descendent of the individual;

(f) Any lineal ascendant or descendent of the spouse of the individual;

(g) Spouse of the persons referred to in (b) to (f).

2. In case of HUF, any member thereof.

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Category : Income Tax (27491)
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Tags : Gift (90) gift from relatives (38) gift in kind (36) section 56 (123) Section 68 (214) Tax on Gift (48)

4 responses to “Tax Treatment of Gifts Received By an Individual or HUF”

  1. ChuckChakravarty says:

    Devolution of Family property in Mumbai –
    Father (Or.Owner) died leaving 5 daughters 1 son
    No will – but eldest daughter is Nominee
    Society transferred flat to Nominee name asTrustee
    Now son wants to make Family arrangement to pay every sibling & acquire ownership ( below mkt rate )
    Will Nominee need to “Gift” – to family – as 1st step?
    If acquisition by son less than FMV – any cap. Gains?
    Distn of funds to surrender hereditary rights?

  2. Ramakrishnan says:

    In respect of car, I differ with you bcoz car will be included as capital asset i.e. fixed asset in the books of taxpayer and hence, movable property in thethe nature of capital asset Shall be assessed to tax SUBJECTS to the conditions

  3. mittal says:

    let me know where should have been shown gift of Rupees given by a/c payee cheques given by donor in his/her income tax return for financial year 31.03.2016.

  4. S K Sharma says:

    In the case of purchase of capital assets for less than the market value I feel there will be no tax implication for the purchaser as the seller has to pay capital gains tax based on the market value if it is more than the declared consideration.

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