In India we express our love and affection through gifts. There are various occasions for gift giving in our society like Rakshabandhan, Diwali, marriages, birthdays and the list goes on. But the government is keeping a close eye on such gifts as they may be misused by tax payers to escape taxes on their income by simply transferring their income to relatives and through other routes. Hence tax on gifts was introduced in 1958. In this article we are going to learn about the rate and quantum of tax on such gifts.
As per Provisions of Income Tax Act,1961 , gift received by any person or persons are taxed in the hands of recipient under the head ‘Income from other sources’ at normal tax rates. The provisions relating to gift tax have been dealt with under Section 56(2)(x) of the Income-tax Act, 1961.
Following table briefly summarizes the Provisions related to Taxation of Gift
|Gifts covered||Monetary threshold||Taxable amount|
|Any sum of money without consideration||Sum exceeding Rs. 50,000||Entire sum of money received|
|Any immovable property such without consideration||Stamp duty value exceeding Rs 50,000||Stamp duty value of the property|
|Any immovable property for inadequate consideration||Stamp duty value exceeds consideration by more than Rs 50,000||Stamp duty value Minus consideration|
|Any movable property (jewellery, archaeological collection, shares, drawings, sculptures, work of art etc) without consideration||Fair market value more than Rs 50,000||FMV of such property|
|Any property other than immovable property for a consideration||FMV exceeds consideration by more than Rs 50,000||FMV Minus consideration|
Date of transfer (registration of property in the name of the new buyer) is to be considered for determination of SDV.
For the purpose of gift tax, if date of agreement to sell and date of transfer are different, stamp duty value as on the date of agreement fixing the consideration need to be considered if following conditions are satisfied:
- Date of such agreement and date of registration are different; and
- Consideration either fully or in part is paid by way of an account payee cheque or bank draft or by using electronic mode of transfer through bank account on or before date of agreement for transfer
Various exemptions are also provided to Individuals and HUFs from such tax:
1. Gifts received from following relatives are exempt:
- Your and your spouse’s brothers and sisters
- Brothers and sisters of your parents
- Your lineal descendants (including spouses)
- Lineal descendants (including spouses) of your spouse
2. Gifts received on occasion of marriage
- Under a will or by way of inheritance
- In contemplation of death of donor or payer
- Recieved from Local authority – Panchayat, Municipality, Municipal Committee and District Board, Cantonment Board
- From any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred in Section 10(23C)
- Any charitable or religious trust registered under section 12A or section 12AA
- Any distribution of capital assets on total or partial partition of a HUF to members of HUF
One thing to be noted here is that to avail exemption on gifts, always get the documentation done (gift deed) when there is an exchange of big gifts and note the occasion on the document. It would be essential to convince the assessing officer at the time of tax scrutiny if the written proofs are ready with you. Consult your Chartered Accountant on the tax liability due to investing money received as gifts.
Due care has been taken to ensure the correctness of information. However, this article cannot be construed as legal opinion and author will not be liable for any claim. Any suggestions are welcome to increase the effectiveness of the article. For detailed analysis on any of the provision or for any query/service, writer can be contacted on the given email address: firstname.lastname@example.org