Important Keyword: Exempt Income, Gift Income, IFOS.
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Gift Tax in India
While many individuals believe that gifts received from friends, family, or relatives are tax-free, it’s essential to understand the provisions outlined in the Income Tax Act. In 2004, the Government of India reintroduced gift tax provisions to regulate the taxation of gifts received by individuals.
According to the Income Tax Act, if an individual receives gifts exceeding the value of INR 50,000 in a financial year, the gift is treated as income in the hands of the recipient and is subject to taxation. This means that the recipient is liable to pay tax on the value of the gift received beyond the specified threshold.
It’s important for individuals to be aware of these provisions to ensure compliance with tax regulations. Gifts above the prescribed limit may attract tax liabilities, and recipients should accurately report such gifts in their income tax returns to avoid any penalties or legal issues.
What is a Gift Tax as per the Income Tax Act?
According to the Income Tax Act, a “gift” encompasses both movable and immovable property, as well as money, received without consideration or against inadequate consideration. Here’s a breakdown of what falls under each category:
- Immovable property: This category includes land, buildings, or both. However, it’s important to note that agricultural land in rural areas is exempted from this definition.
- Movable property: Movable property refers to assets that can be physically moved from one place to another. Examples of movable property include shares, securities, jewelry, archaeological collections, drawings, paintings, works of art, bullion (precious metals like gold or silver), vehicles, and other similar items.
When are Gift taxable?
Gifts received in India become taxable if their total monetary value exceeds INR 50,000 and they are received without any consideration. For instance, if Rohan receives gifts worth INR 7,000 from each of his 10 friends, totaling INR 70,000, the entire amount becomes taxable as it surpasses the INR 50,000 threshold.
Similarly, gifts received against inadequate consideration become taxable if the shortfall exceeds INR 50,000. For example, if Nisha receives INR 10,000 from each of her 10 friends but gives back INR 3,000 to each, resulting in a total shortfall of INR 70,000, this entire shortfall becomes taxable.
Gifts classified as capital assets, such as stocks, raw materials, or consumables for business use, are taxable in the hands of the recipient. However, items like these are not considered capital assets and are therefore not taxable.
Taxation of gifts falls under the head “Income from other sources” and is subject to normal slab rates. It’s important to note these regulations to ensure compliance with tax laws and avoid any potential penalties or legal issues.
When Gifts received are exempt from tax?
Gifts received under certain circumstances are exempt from taxation in the hands of the recipient, regardless of their monetary value:
Gifts from relatives, which include:
- Spouse of the individual
- Brothers and sisters (including their spouses) of both the individual and their spouse
- Brothers and sisters (including their spouses) of the individual’s father and mother
- Any lineal ascendant or descendant (including their spouses) of the individual
- Any lineal ascendant or descendant (including their spouses) of the spouse of the individual
Additionally, gifts received on specific occasions or from specific entities are also exempt from taxation:
- Gifts received on the occasion of marriage
- Gifts received under a will or by way of inheritance
- Gifts received in contemplation of the death of the payer
- Gifts received from a local authority
- Gifts received from funds, foundations, universities, educational institutions, medical institutions, hospitals, trusts, or institutions defined under Section 10(23C), or those registered under Section 12AA
Here is the summary of all the scenarios for better understanding:
| Gift | Consideration | Amount taxable |
|---|---|---|
| Money (cash, cheque, draft) | Nil | If money > 50,000; whole amount taxable |
| Immovable property | Nil | If the Stamp duty value is> 50,000; the Stamp duty value would be taxable |
| Immovable property (as defined above) | Received which is less than stamp duty value by an amount exceeding Rs 50,000 | [Stamp duty value – consideration] would be taxable |
| Agricultural land in rural areas | Nil/received | Nil |
| Movable property (as defined above) | Nil | Fair market value > 50,000; Fair market value would be taxable |
| Movable property (as defined above) | Received which is less than Fair market value by an amount exceeding Rs 50,000 | Fair market value – consideration > 50,000, Fair market value would be taxable |
| Property/money on the occasion of marriage | Nil/received | Completely exempt irrespective of value |
| Any gifts not included in definition above | Nil/received | Completely exempt irrespective of value |
Provision Relating to Stamp Duty for Gift Tax
When determining gift tax for immovable property, the stamp duty value plays a crucial role. In some cases, the stamp duty value may be higher due to factors such as the time gap between the agreement fixing the consideration and the registration date. Therefore, it’s essential to consider the stamp duty value as of the date of the agreement fixing the consideration if the following conditions are met:
- If the consideration is paid fully or partially via account payee cheque, bank draft, or digital mode on or before the date of the agreement for the transfer.
- If the date of the agreement differs from the date of registration.
By considering these conditions and using the stamp duty value as of the agreement date, one can ensure accurate calculation of gift tax for immovable property transactions.
Read More: Income from Other Sources (IFOS)
Web Stories: Income from Other Sources (IFOS)
Official Income Tax Return filing website: https://incometaxindia.gov.in/
