Not all Gifts are (tax) free!
Gifting is an inevitable part of India’s diverse culture of celebrating festive and events. Many occasions such as Rakshabandhan, Diwali, marriages, birthdays are incomplete without gifts. We Indians express our love and affection through gifts. But do gifts really come free? Indian Income Tax Law taxes receipt of gifts on certain occasions. You must carefully evaluate the kind of gift you receive, your relationship with the donor, monetary value of gift etc. before enjoying its benefits.
Category of Gifts: Gifts can be with no consideration or with some consideration. The former means you are not paying anything for the gift received, whereas the latter includes paying something for the gift.
Gifts are taxable under any of the following three categories as per the Income Tax Act, 1961:
- Money: Cash, cheques or drafts
- Immovable Property: Land and/or building
- Movable Property: Shares, mutual funds, jewelry, gold bars, art, sculptures, etc.
Exempted Gifts:
Gifts are not always taxed. One does enjoy tax exemption on certain gifts such as:
- All money gifts received in a year not exceeding Rs.50,000
- Gift received from a relative
- Gift received on one’s marriage
- Property received under will or inheritance
- Property received in contemplation of death of the payer
Who are your Relatives?
“Relative” has a different definition for tax purposes:
(i) In case of an individual, following persons are considered as individual’s relatives:
- 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 descendant of the individual;
- any lineal ascendant or descendant of the spouse of the individual;
- spouse of any of the persons mentioned herein above; and
(ii) In case of a Hindu undivided family, any member thereof.
Taxable Gifts:
If above gifts are tax neutral, then what kind of gifts really attract tax? See the below table to understand how gifts are taxed under the head “Income from Other Sources” at a normal slab rates:
| Gift | Condition | Taxable Amount |
|---|---|---|
| Money | Aggregate money value exceeds Rs.50,000 | Whole of aggregate value of gift |
| Immovable Property received without consideration | Stamp duty value exceeds Rs.50,000 | Stamp duty value of property |
| Immovable Property received with some consideration | Stamp duty value less consideration exceeds Rs.50,000 | Difference between stamp duty value and consideration |
| Movable Property received without consideration | Fair market value exceeds Rs.50,000 | Total fair market value of property |
| Movable Property received with some consideration | Fair market value less consideration exceeds Rs.50,000 | Difference between fair market value and consideration |
Irrespective of taxability and size of gifts, you are advised to always have a signed Gift Deed for the gift received. It is a documentary evidence for the intention and authenticity of the transaction.