Tax on Gifts in India

What is Gift Tax in India?

Tax on gifts in India was initially introduced in 1958 under the Gift Tax Act. However, this act was abolished in 1998. But gifts are still taxable. The rules now fall under the purview of the Income Tax Act of 1961, specifically under Section 56(2)(x).

What Is a Gift as per the Income Tax Act

The Income Tax Act gives a specific definition of ‘Gift,’ according to which, if you receive any money or moveable/immovable property from another person without making any payment, it will be termed as a gift.

Thus, if you receive any of the following as a gift, the related income tax provisions will be applicable:

• Money in the form of cash, cheque, draft, bank transfer, etc.
• Movable property like shares, bonds, jewelry, sculptures, paintings, etc. If you have received a movable property at a price lower than its fair market value, it will also be considered as a gift.
• Immovable property such as building, land, residential or commercial property. Similar, to the above point, if you receive the immovable property at a price lower than its stamp duty value, income tax act will treat it as a gift.

Gifts Exempted From Tax

Certain gifts you receive can indeed attract tax on gifts in India. But don’t worry! There are some important exceptions to this rule. Let’s break down these exceptions so you can understand when you might not have to pay tax on a gift.

How to Calculate the Taxable Value of a Gift

To figure out how much tax on gifts in India you owe, the Income Tax Act has guidelines for calculating the taxable value of gifts. Here’s a handy table that explains how to determine the gift tax rate in India for different types of monetary and non-monetary gifts:

Gift Tax Exemption Relatives List

Gifts are always a wonderful part of life, whether it is for a birthday, a wedding, or just a thoughtful gesture. But when it comes to tax on gifts in India, things can get a bit tricky. Understanding who you can receive gifts from without worrying about taxes is key. Let’s discuss the gift tax exemptions for different types of gifts and the relatives involved.

Tax on Gifts Received from Friends

When it comes to gifts from friends, things can get a bit complicated. In India, if you receive gifts from someone who is not a close relative, and the total value of those gifts exceeds ₹50,000 in a financial year, you may need to pay tax on them. This includes cash, property, and other valuables.

Tax on Gifts Received from Relatives

Now, gifts from relatives are a whole different story! In fact, gifts received from specified relatives are completely exempt from tax, no matter how much they’re worth. So, who exactly qualifies as a “specified relative”?

• Spouse: Any gift from your husband or wife is exempt from tax.
• Siblings: This includes your brothers and sisters, as well as those of your spouse.
• Parents and Grandparents: Gifts from your parents, grandparents, and great-grandparents are also tax-free.
• Children and Grandchildren: Gifts from your own kids and grandkids are not taxable.
• In-laws: Gifts from your spouse’s siblings, parents, and other direct family members are also exempt.

This list is designed to ensure that financial support and gifts within close family circles don’t add to your tax burden. So, if you receive a substantial gift from one of these relatives, you can enjoy it without any worries about tax on gifts in India.

Tax on Gifts Received in Marriage

Gifts received on the occasion of marriage are treated very kindly under the tax laws. The good news is that any gifts you receive during your wedding, regardless of the amount or who gives them, are exempt from tax.

This means that whether it’s cash, jewelry, property, or any other valuable item, you do not have to pay any tax on gifts in India. It is a nice way for the tax rules to acknowledge and celebrate one of life’s significant events. So go ahead and enjoy the generous gifts that come your way on your special day without stressing about taxes.

Tax Saving Through Gifts

If you are giving a gift to someone who is not a close relative, remember that the maximum amount you can transfer without triggering tax is ₹50,000. Anything over this amount will be taxed according to the receiver’s tax bracket.

But here is a way to save on taxes: consider clubbing gifts. This strategy is particularly useful when gifting to close family members like parents, children, or in-laws. While the gift does not increase your taxable income, any income generated from investing the gift money is taxed as the receiver’s income. So, your tax burden remains unaffected, and you do not need to report it in your tax filings.

Just keep in mind that the income tax department closely watches gift transactions, especially when large amounts are involved. It’s a good idea to keep proper documentation to prove your gifts are genuine, especially when dealing with expensive items.

How to Declare Tax on Gifts in India?

According to the current Income Tax rules, if you receive a gift, it’s considered a direct tax, meaning you are responsible for declaring it and paying any applicable taxes.

To figure out how much tax on gifts in India you owe, you need to declare the value of the gift when you file your Income Tax Return under the “Income from Other Sources” section. The value of the gift is added to your total income for the year, and your tax liability is calculated based on your income tax slab rate.

Gift Tax Provisions Relating to Stamp Duty

Stamp duty is a tax levied by the state government on legal documents related to the transfer of immovable property, even if it is given as a gift. It is calculated on the stamp duty value (also known as circle rate).

We have already discussed that if the stamp duty value exceeds ₹50,000, the gift will be taxable. However, there are some other provisions that clarify the taxability of immovable property in special conditions:

• The Gap between Agreement and Registration: If the agreement and registration dates are different, then the stamp duty value on the agreement date is considered for taxation.

The condition here is that at least a part of the consideration must be made before the agreement date via account payee cheque, bank draft, or electronic transfer. This provision benefits individuals when stamp duty rates increase between the agreement date and registration date, helping to avoid excess tax liability.

• Disputed Stamp Duty Value: Sometimes, the stamp duty authority may determine a value higher than what you have considered. You have the right to challenge it under Section 50C, read with Section 56(2)(x), and refer to a Valuation Officer (VO).

The VO will examine the records, allow you to present your case, and issue a written order specifying the property’s value. The lower value determined by the VO can then be considered for tax on gifts in India.

• Section 56(2)(x) Relaxation: If the difference between the actual transaction value and stamp duty value is within 10% of the transaction value, no tax is imposed under Section 56(2)(x). For instance,

Actual Transaction Value or Purchase Price= ₹6,00,000

Stamp Duty Value= ₹6,55,000

Difference Between Purchase Price and Stamp Duty Value= ₹55,000

As per Section 56(2)(x), if the gap exceeds ₹50,000, tax is applicable. But, in this case, as the gap (₹55,000) is less than 10% of the purchase price (10% of ₹6,00,000= ₹60,000), Section 56(2)(x) relaxation will be applicable. No tax on gifts in India is to be paid in this case.

FAQs on Gift Tax in India