Taxability of Gifts in the Hands of Recipients Simplified

In our country gifts are given and received on many occasions amongst family, friends, relatives, colleagues, neighbours, etc. Gifts are integral part of our rituals and customs also. Gifts may consist of cash gift or in the form of any movable or immovable properties. However, often it is found that people are not much aware of the provisions of taxation of receipt of gifts. For want of awareness, tax issues crop up in future leading to litigation and huge tax outgo with interest and penalties.

In this article, I will discuss the Income-tax provisions governing the receipts of gifts in any form and taxability in the hands of recipients.

Statutory provision:- The amount received by an individual or HUF up to     Rs. 50,000/- either in the form of money, Immovable Property, or other property  in a Single Financial Year is exempted from Income Tax. However, if the aggregate value of such sum exceeds Rs. 50,000/- in one F.Y. the entire amount is taxable in the hands of the Individual or HUF as Income from Other Sources under section 56 of the Income-tax Act, 1961.

Example:-

Scenario 1: Mr. A received Rs. 25,000/- from Mr. X and Rs. 24,000/- from Mr. Y, where Mr. X and Mr. Y are unrelated to Mr. A, the entire amount of Rs. 49,000/- (Rs. 25,000/- plus Rs. 24,000/-) will be exempt from Tax as the aggregate amount of gift is less than Rs. 50,000/-.

 Scenario 2: Mr. A received Rs. 25,000/- from Mr. X and Rs. 26,000/- from Mr. Y, where Mr. X and Mr. Y are unrelated to Mr. A, then the entire amount of Rs. 51,000/- (Rs. 25,000/- plus Rs. 26,000/-) will be treated as Income from Other Sources in the hands of Mr. A as the aggregate amount is more than Rs. 50,000/-. Many persons interpret that the amount over and above Rs.50,000/- is taxable and only Rs. 1,000/- should be taxable. This is a wrong notion. Once the gift amount crosses Rs. 50,000/-, the entire amount is taxable as Income from other sources in the hand of recipient.

Scenario when the receipt of Money, Immovable Property, or Other Property for any amount or value are not taxable in the hands of recipients:-  If the Money, Immovable Property, or Other Property is received by an Individual or HUF without any consideration in the following circumstances, then there is no Income Tax on any amount of money or any valuation of immovable or other properties received:-

(I) from any Relative (There is a misconception in the mind of general public about the term Relative. It is always referred as if it represents blood relatives, which is factually wrong. The   relatives as per Income-tax Act is clearly defined and restricted to its definition.  For a clear understanding, exhaustive lists of Relatives as per Income Tax Act for both Male and Female recipients of Gifts have been prepared and appear in the succeeding paras); or

(II) on the occasion of the Marriage of the individual; or

(III) under a Will or by way of Inheritance; or

(IV) in contemplation of the death of the payer or donor (if the person is in dying condition and he or she hands over his money or property to someone); or

(V) From any Local Authority; or

(VI) From any Fund or Foundation or University or Other educational Institution or Hospital or Other Medical institution or Any Trust or institution referred to section 10(23C); or

(VII) From any Trust or Institution registered under Section 12A, 12AA or Section 12AB of the Income Tax Act.

(VIII) From any fund or trust or institution or any university or other educational institution or any hospital or other medica institution referred to in sub clause (iv) or sub clause (v) or sub clause (vi)or sub clause (via) lf clause (23C) of section 10, or

(IX) By way of Transaction not regarded as Transfer under clauses  (i), (iv), (v), (vi),(via),(via),(viaa)(vib),(vic),(vica),(vicb),(vid),(vii), (viiac),(viiad)(viiae) or (viiaf) of section 47.

(X) From an individual by a trust created or established solely for the benefit of relative of the individual,

(XI) From such class of persons and subject to such conditions as may be prescribed in rule 11UAC of Income-tax Rules.

In the present article, the gifts received by an individual or HUF from Relatives and by an individual on the occasion of marriage will be discussed out of the above eleven exceptions. For better understanding the terms such as Amount, Property, Jewellery and Relatives are being discussed at length hereunder:-

Amount/Property means-

• Money
• Immovable Property being land or building or both
• Shares and Securities
• Jewellery
• Archaeological Collections
• Drawings
• Paintings
• Sculptures
• Any work of Art
• Bullion

Jewellery means-

(i) Ornaments made of Gold, Silver, Platinum, or any other precious metal, or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel,

(ii) Precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel.

Relatives- As regards gift and relatives, the general notion is that the blood relatives come under the purview of Relatives and any gifts received from blood relatives are exempt from tax. This is a misconception and wrong notion. Relatives are defined in the Income-tax Act, 1961 as under:-

In case of an Individual-

1. Spouse of the individual

2. Brother or sister of the individual

3. Brother or sister of the spouse of the individual

4. Brother or sister of either of the parents of the individual

5. Any lineal ascendant or descendant of the individual

6. Any lineal ascendant or descendant of spouse of the individual

7. Spouse of the person referred in point 2-6 above

In case of a HUF- any member thereof.

On the basis of above provision of the Act, list of relatives, who qualify the above parameters, have been prepared for both Male and Female individual recipients of gifts separately for easy understanding. Receipt of any amount of Money/Immovable Property/Other Properties without consideration on any occasion or without any occasion from the relatives mentioned in the following lists are fully exempted from Income Tax.

 List of Relatives from whom gifts received by a Male recipient is exempt from Income-tax:-

List of Relatives from whom gifts received by a Female recipient is exempt from Income-tax:-

Gifts can be received by a Male or Female Individual from any of the relatives mentioned in the aforesaid two lists on any occasion or without any occasion out of natural love and affection. However, it is advisable to get irrevocable gift deed executed as evidence of receipt of gift.

Here it is pertinent to mention that the relationship between the donee and the donor as defined in above list are unilateral and not vice-versa.

For example– If Mr. A is receiving a gift of Rs. 50 Lakh from his uncle Mr. B (Father’s brother or Mother’s brother), no taxes is payable by Mr. A on the receipt of Rs. 50 Lakh from his uncle. However, if Mr. A is giving gift of Rs. 30 Lakh to his uncle Mr. B (Father’s brother or Mother’s brother), then the receipt of Rs. 30 Lakh will be taxable in the hands of Mr. B as the nephew is not form the part of relative as per the Act.

So although relationship of nephew and uncle is blood relation, but not all blood relationships are covered under this provision. Similarly, relationship of Cousins is not covered under the purview of Relatives as per Income tax Act, 1961. Hence if anyone receives gift from his or her cousin, the same is taxable in the hands of the recipient.

On the other hand, relationship other than blood relations are also form part of the term Relative, such as Wife, Husband, Brother-in-Law, Sister-in Law, Father-in-Law, Mother-in-Law, wife of brother of wife, husband of sister of husband, etc. etc.

It is therefore advised to ascertain the relationship from the above two lists before receiving any gift, else the total value of gift shall be taxable in the hands of recipients.

Gifts received on the occasion of the Marriage of the individual are fully exempt from Income-tax:-

On the occasion of marriage, the bride or the groom need not pay any tax on the cash, movable or immovable gifts received by them from anyone, as the same is exempt from Income-tax. The restriction of receipts of gifts from Relatives are not applicable on the gifts received on the occasion of marriage. The gifts received by Bride or Groom from family, friends, cousins, relatives, distant relatives, colleagues, neighbours or any other person are fully exempt from tax.

For example- On the occasion of marriage the bride received gift of gold and diamond jewellery of a total value of Rs. 75 Lakh and an amount of Rs. 10 Lakh by bank transfer from friends/colleagues/neighbours/well-wishers/relatives/distant relatives/or any person, the bride need not pay any tax on the receipt of Rs. 75 Lakh jewellery and Rs. 10 Lakh cash gifts. Similarly, if the bridegroom received a diamond ring of a value of Rs. 20 Lakh, the same is exempted from tax in the hands of bridegroom.

If anyone gifts a plot of land or house or flat to the bride/bridegroom at the time of marriage, the same is exempted from tax irrespective of the value of the property and/or the relationship of the donor with bride or groom.

Precautions:- The precaution, which people forget to take after receiving the gift is, to do proper documentation and to preserve the records. It is advised to keep the documents such as gift deed duly authenticated by the donor and donees, bills of movable properties, bank statements, PAN of the donor, etc.  In the case of gift of immovable property received from Relatives, the irrevocable gift deed must be registered clearly mentioning the relationships of the donor and donee. If the immovable property are received at the time of marriage, it must be mentioned in the irrevocable gift deed that the property has been received as gift on the occasion of marriage.

I hope that the present article will be helpful in understanding the provisions of taxation in respect of receipt of gifts and for proper Tax Planning. If you have any question related to the topic please do not hesitate to ask, all your queries will be answered.

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For any query or professional consultation on any Income-Tax provisions, the Author may be contacted through WhatsApp at +91 9967745680 or via email- at [email protected]