Taxes on Gift

Article explains Income Tax Treatment of Immovable Property Received as Gift Without Consideration or for Inadequate Consideration, Any property other than immovable property received Without consideration of For Inadequate Consideration, Gifts from Friends and Unrelated Persons, Gift from Relatives, Gifts Received at Wedding, Gift Received As Inheritance, Money Received in Contemplation of Death, Gift Received from Local Authority or Charitable Trust and Gifts Received at the time of termination of employment.

In this article, we look at income tax applicable on gift in detail. Currently Section 56(2)(X) is covered the chargeability of taxes on gifts, any amount received by a person or HUF over Rs.50,000/- in a year from any unrelated person, in cash or in kind, will be included as income.

1. Immovable Property Received 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.

2. Any property other than immovable property:

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. Gifts from Friends and Unrelated Persons

Income tax is not applicable on gifts received from relative (Meaning of ‘relative’ is provided below). Friends do not fall under the definition of relative as per Income Tax Act. Thus, gift received from friends will be charged to tax if it exceeds the threshold.

4. Deduction for Gift

Gifts received from relatives is not taxable and there is no limit on the amount of money that can be received as gift from relative that is not chargeable to income.

However, money received without consideration by an individual or HUF from any other persons other than a relative is chargeable to tax if the aggregate value of the money received during a year exceeds Rs.50000/- .

Hence, if the total value of gifts received by a person exceeds Rs.50000/- in a year and he/she did not receive the money as a gift for wedding, then the entire amount received by the taxpayer will be taxed.

Example:-If a taxpayer received a gift of Rs.45000/- during his/her birthday from a friend, the entire amount of Rs.45000/- will not be taxable under income tax.

On the other hand, if a taxpayer receives a gift of Rs.55000/- during his/her birthday from a friend, the entire amount of Rs.55000/- will become taxable under income tax, as it exceeds the threshold.

5. Gift from Relatives

Gift from relatives are not taxable under the Income Tax Act. As per the Income Tax Act, the following lists of persons are defined as a relative of an individual. Hence, only money received from the following persons will be exempt from income tax for an individual taxpayer.

• Spouse of the individual.
• Brother or sister of the individual.
• Brother or sister of the spouse of the individual.
• Brother or sister of either of the parents of the individual.
• Any lineal ascendant or descendent of the individual.
• Any lineal ascendant or descendent of the spouse of the individual.
• Spouse of the persons referred to in (2) to (6).
• In case of HUF, gift received from any of the member of the HUF is exempt from Income Tax.

6. Gifts Received at Wedding

Money and gifts received by an individual taxpayer on the occasion of his/her marriage are exempt from income tax.

7. Gift Received As Inheritance

Money received by way of Will or by way of inheritance is exempt from income tax. Hence, no income tax will be payable on any movable or immovable assets inherited, consequent to the demise of a relative.

8. Money Received in Contemplation of Death

Similar to inheritance being not taxable, money received in contemplation of death of an individual or karta or member of a Hindu undivided family is also exempt from Income Tax. According to the Dictionary, the word contemplation means “the state of being considered or planned”.

9. Gift Received from Local Authority or Charitable Trust

According to the Income Tax Act, any money received from a local authority or fund, foundation, university, other educational institution, hospital or other medical institution or any trust having 12A registration is exempt from income tax.

Under this section, money received by a meritorious student from a college or University or a patient under medical care can be exempt from income tax.

10. Gifts Received at the time of termination of employment

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 will be exempt from income tax

(Republished with Amendments)