All about Gift Tax in India and exemptions
Gifts have been seen as a symbol of love and affection since time immemorial. In reality, they can denote social standing in various circumstances. Regardless, gifts can be used for tax planning and as a means for individuals to avoid paying taxes. While the importance of gifts in tax planning is recognized in multiple ways, dodging the same is absolutely forbidden and punishable. As a result, in order to avoid such consequences and make the most of tax planning, people need to get familiar with the issues of tax on gifts in India.
What is Gift Tax in India?
The Indian government imposed a gift tax in April 1958, and the Gift Tax Act governs it. The aforementioned Act was introduced in order to tax the exchange of gifts in certain circumstances.
Gifts here essentially signify anything in the form of cash, bank cheques, demand draughts, or other valuables. According to the modified law of 2017, every gift received by an individual or individuals is now taxed at the receiver’s hands as ‘Income from other sources. Notably, such gifts are subject to ordinary taxation. Previously, the Gift Money Tax Act was repealed in 1998, but it was revived and incorporated into the Income Tax Provisions in 2004.
When are Gifts Exempt from Gift Tax?
Not all gifts received in India are taxed under current tax legislation. However, the Income Tax Act of 1962 has important provisions that allow you to accept tax-free gifts. For example, if you get presents or cash worth up to Rs. 50,000 in a fiscal year, you are not required to pay gift tax on it.
Similarly, there is no tax responsibility if you receive gifts from your parents, spouse, siblings, or other close relatives such as in-laws. Again, this exemption from gift taxation applies regardless of the value of the present.
On the occasion of a marriage, it is not uncommon in India to give extravagant gifts such as jewelry or even property. However, under present law, you are not required to pay any tax on gifts received when you marry, regardless of their value. If you receive money or property as an inheritance or through a will, it is considered a gift because you did not pay for it. There is no gift taxation in this scenario, either.
How To Calculate the Taxable Value of a Gift?
The Income Tax Act includes procedures for calculating the taxable value of gifts in order to determine how much tax you must pay when you receive one. The table below shows how to determine the taxable value of several forms of monetary and non-monetary gifts:
|Type of Gift||Applicability of Gift Tax||Taxable Value of the Gift|
|Cash, Cheque or Bank Transfer||If the value of the gift exceeds ₹50,000||The entire sum of money received as a gift|
|Immovable property such as land, building, etc. without consideration (i.e., without making any payment)||If the Stamp Duty Value of the gift exceeds ₹50,000||Stamp duty value of the property received as a gift.|
|Any immovable property for inadequate consideration (i.e., property purchased at a price lower than the Stamp Duty Value of the property)||If Stamp Duty Value of the gifted immovable property exceeds purchase price by more than ₹50,000||The difference between the Stamp Duty Value and the purchase price of the gifted property is taxable.|
Example: If the Stamp Duty Value of the gifted property is ₹2 lakh and the purchase price is ₹1 lakh, the taxable amount is ₹1 lakh (2 lakh – 1 lakh).
|Assets such as jewelry, shares, paintings, sculptures, etc. without consideration (i.e., without making any payment)||If the fair market value of the gift exceeds ₹50,000||Fair Market Value of the gift.|
|Assets such as jewelry, shares, paintings, sculptures, etc. for consideration (i.e., bought by the donor before being gifted)||If the fair market value of the gift exceeds the purchase price by more than ₹50,000||The difference between fair market value and the purchase price of the gift is taxable.|
Example: If the fair market value of jewelry given as a present is ₹3 lakh and the original purchase price is ₹2 lakh, the taxable amount is ₹1 lakh (3 lakh – 2 lakh).
Taxation on Gifts – Exemption
The table below summarises India’s gift tax rules.
|Category of recipient||Category of Donor||Occasion in Question|
While there is no tax on gifts, income generated from some gifts given to relatives is taxable for the donee.
|Any individual||Individual||While contemplating the death of the payer or donor.|
|Trust that was created to extend benefits to relatives of the individual.||Individual||Not applicable.|
|Any individual||Any individual||Through a will or in case of an inheritance.|
|Individual||Any individual||Wedding ceremony|
|Any person||Any trust, fund, institution, or foundation as mentioned in Section 10(23C).||Not applicable|
|Any person||Local authorities like the Cantonment Board, Panchayat, Municipality, etc.||Not applicable|
|Members of HUFs||Hindu United Families||Due to the distribution of capital assets arising from the partial or total partition of a HUF.|
|Entities mentioned in Section 10(23C) (iv) (v) (vi) and (via).||Any individual||Not applicable|
|Any individual||Religious or charitable trusts that are registered under 12A or section 12AA.||Not applicable|
Understanding how gift taxation works in India might help you make proper income tax reports. It can also assist you in planning to reduce your tax burden prior to filing Income Tax Returns. Like this post? Don’t forget to check out our other short stories in our Quick Read section