Gifts symbolise love and affection and, in some instances, social status. Gifts have been utilised for tax planning, offering individuals avenues to manage their tax liability effectively. However, it is crucial to emphasise that using gifts for tax evasion is prohibited and can lead to penalties. To navigate the complexities of tax on gifts in India and maximise legitimate tax planning benefits, individuals must gain a comprehensive understanding of the relevant aspects.
What is a gift as per the Income Tax Act?
As per the Income Tax Act, a ‘gift’ encompasses money, movable or immovable property received by an individual from another individual or organisation without any corresponding payment. Legally, a gift giver is referred to as the donor and the recipient is known as the donee. It is crucial to comprehend the tax implications of gifting as they can significantly influence your financial planning.
What is a gift tax?
The Gift Tax Act was enacted by the Parliament of India in 1958 to impose taxes on the giving and receiving of gifts under specific circumstances. Taxable gifts encompass various forms, including cash, property, shares, jewellery and vehicles. Under Section 56(2)(x) of the Income Tax Act 1961, the following gifts are considered taxable:
- Monetary gifts: Any gift received in the form of money, whether in Indian National Rupees or foreign currency, is subject to taxation. This includes gifts made through cash, cheques, bank transfers or drafts.
- Movable property: Gifts involving movable property, such as jewellery, shares, vehicles, bonds, furnitureand antique paintings, are classified as taxable gifts.
- Immovable property: Gifts like plots, land, residential buildings, apartments, flats, shopsand commercial retails, fall within the category of taxable gifts.
See also: Do you have to pay stamp duty to gift your property to a relative?
How is the tax on gifts calculated in India?
Under the provisions of the Income Tax Act, the taxable value of a gift, treated as income, is determined using the following criteria:
- Market value: The taxable value of a gift is the market value of the property or asset at the time of gifting. This encompasses cashand movable or immovable property.
- Exemptions: Certain gifts are exempt from tax. For instance, gifts received from relatives, gifts received under a will or inheritance or gifts received on the occasion of marriage qualify for tax exemption.
- Deductions: In specific cases, certain deductions may be permitted to calculate the taxable value. For example, if the gift is received from a charitable organisation, the amount of donation made to that organisation may be deducted from the taxable value.
Provisions on taxation on gifts
| Type of gift | Threshold | Taxable limit |
| Money received without consideration | Gifts exceeding Rs 50,000 | The entire amount received as a gift is taxable |
| All immovable assets, such as buildings and land received without any consideration | Stamp duty value exceeding Rs. 50,000 | The stamp duty is taxable |
| Immovable property with insufficient consideration | Stamp duty value exceeding the consideration by Rs. 50,000 | The stamp duty value without consideration is taxable |
| Gifts like shares, painting valuable jewellery and other things without consideration | When the fair market value exceeds Rs 50,000 | The property’s fair market value is taxable |
| Properties other than immovable assets for consideration | When the fair market value is more than the consideration by at least Rs 50,000 | The fair market value other than consideration is taxable |
Exemptions for tax on gifts in India
In India, certain exemptions on gifts apply to both individuals and organisations. These include:
- Gifts from relatives: Gifts received from specific relatives, such as siblings, parents, spouses and children, are exempted from tax. There is no limit on the gift value.
- Gifts received in marriage: Gifts received by an individual in marriage are exempted from tax. This exemption applies to gifts received from any person, regardless of their relationship.
- Gifts received under a will or inheritance: Gifts received under a will or inheritance are exempted from tax. The value of the gift is not considered income and is not taxable.
- Gifts received in contemplation of death: Gifts received by an individual in contemplation of their death are exempted from tax. These gifts are usually received from relatives or close friends.
- Gifts received from charitable organisations: Gifts received from registered charitable organisations are exempted from tax. This includes donations made to educational institutions, religious institutions and other recognised charitable organisations.
How to save tax with gifts?
There are ways to save taxes through gifts in India. When the gift donor and receiver are unrelated, the maximum amount that can be transferred without tax implications is Rs 50,000. Any amount beyond this limit makes the entire sum taxable based on the receiver’s tax slab.
Tax benefits can be availed by gifting to close family members, including children, parents or parents-in-law. Gifting to family members does not change the donor’s taxable income, however, any interest earned by the recipients from the gifted money is considered income. This income does not increase the donor’s tax burden or require inclusion in tax filings.
Given the scrutiny by the income tax department, individuals involved in significant gift transactions are advised to maintain proper documents. Proper documentation helps establish the genuineness of the receipt and can justify the source of funds when required under the purview of gift tax in India. It is crucial to adhere to tax regulations and maintain transparency to ensure compliance related to gift taxation in India.
FAQs
What is the limit for a cash gift?
According to Section 269ST of the tax law, an individual cannot receive more than Rs 2 lakh as a cash gift in India from a person in a single transaction within a day.
Are gifts received from abroad subject to taxation in India?
Gifts received by a resident from a non-resident in India are taxable if the gift’s value exceeds Rs 50,000 in a financial year.
Is TDS applicable to gifts?
Yes, TDS (Tax Deducted at Source) of 10% is deducted on a value exceeding Rs 20,000 against the PAN card of the recipient. This applies to individuals or corporations giving gifts, promotional material sponsorship or gift vouchers under Section 194R of the Income Tax Act 1961.
Are there any exemptions for gift tax in India?
Yes, gifts from relatives, gifts received in marriage and gifts from charitable organisations are exempted from taxation.
Is a gift from a spouse exempted?
While gifts from a spouse are exempted from gift tax, any income earned from the gift is clubbed with the individual’s income and subjected to taxation.
How should I declare gifts in my income tax return?
Taxable gifts can be declared under ‘income from other sources’ when filing income tax returns.
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Dhwani is a content management expert with over five years of professional experience. She has authored articles spanning diverse domains, including real estate, finance, business, health, taxation, education and more. Holding a Bachelor’s degree in Journalism and Mass Communication, Dhwani’s interests encompass reading and travelling. She is dedicated to staying updated on the latest real estate advancements in India.
Email: dhwani.meharchandani@housing.com
