Income Tax on Gift received in India: Rules & Exemption
Dear reader, here is a quick guide on – Income tax on gifts received. We all love to give and receive gifts from our friends, colleagues and relatives. In India giving gifts is customary.
It is seen as a sign of friendship, and closeness. We receive a lot of gifts from our family friends, relatives, and office colleagues on various occasions or festivals.
But, do you know that receiving a gift can make you liable to pay tax? Many of us are not aware of the provisions of gift tax.
In this article, we will discuss all about Gift Tax in India, its rules and exemptions.
Dear Reader, although Gift Tax Act, 1958 has been abolished, however there are certain provisions in the Income Tax Act, which make the gift taxable in the hands of the recipient.
As per the provisions of section 56(2) of the Income Tax Act, 1961, any gifts (in cash or kind) received by an individual or HUF (Hindu Undivided Family) in excess of Rs. 50,000/- in a year would be taxable.
Who is liable to pay gift Tax?
Person receiving gifts will be liable to pay gift tax. Such income would be taxable in the year in which received and taxable under the head “Income from other sources”.
To have a better clarity, let’s see what is Gift or what constitute a gift to fall under the ambit of gift tax.
What does Gift means in Income Tax Act?
“Gift” means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money’s worth.
Thus, income tax authority considers:
- Monetary gifts given in cash/cheque/demand draft,
- Moveable property such as jewellery, gold bars, paintings, drawings or sculptures,
- Immovable property such as land or building or both, as gifts.
Are gifts of immovable property received by an individual or HUF charged to tax?
Gift of immovable property received by an individual or HUF will be charged to tax, if:
- Immovable property (land or building or both) is received by an individual/HUF,
- received without consideration (i.e., received as a gift)
- Stamp duty value of such immovable property received exceeds Rs. 50,000
Exemptions from levy of Income Tax on Gifts
Now, we know that, monetary value of any gift (cash or kind) in excess of Rs.50000, received without consideration by an individual or HUF from any person is chargeable to tax as income under head income from other sources subject to some exemptions.
That means, there are cases when you exempt from tax.
When are gifts exempt from tax?
There are cases or situations where gift received are not chargeable to tax as income. In the following cases you are exempt from tax:
- from relatives** (See below).
- by a HUF from its members.
- on the occasion of the marriage
- under will/ by way of inheritance.
- Gift Received in contemplation of death of the payer or donor.
- Received from a local authority
- Received from any fund/foundation/university/other educational institution/hospital or other medical institution, any trust or institution referred to in Section 10(23C).
- Money received from a trust or institution registered under section 12AA.
**Relatives Meaning for Gift Taxability
Relatives for this purpose means:
(a) Spouse of the individual;
(b) Siblings (Brother or sister) and their spouses of the individual;
(c) Siblings of the spouse of the individual;
(d) Siblings of the parents of the individual;
(e) Any lineal ascendant or descendant of the individual;
(f) Any lineal ascendant or descendant of the spouse of the individual;
Key Points on – Income Tax on Gifts Received
Here, I am jotting down key points of the provisions of Income Tax on Gift received. This is just for your reference.
- any gift (cash or kind) in excess of Rs.50000, received without consideration by an individual or HUF from any person* is chargeable to tax
- Gift include any gift, “cash or kind” or “movable or immovable property,
- Chargeable to tax under head “income from other sources”,
- Chargeable to tax in the hand of recipient
- Gift of immovable property received without consideration by an individual or HUF will be charged to tax, if, Stamp duty value of such immovable property exceeds Rs. 50,000
- Gift received on the occasion of the marriage is exempt from tax
- Gift received from relatives exempt from tax