Our Indian culture has many traditions attached to the word “Gift”. India is a country with diversified cultures where each occasion is a reason to celebrate and show love and affection to family members and friends. Gifts are exchanged on numerous occasions like Diwali, Raksha Bandhan, Christmas, New Year, etc. In addition to this some people consider gifting as status symbol.
But a Layman will not have any idea that these gifts can also be taxable. Yes, after certain limit these gifts are taxable and one needs to pay tax on gift received by them. It is important to know taxation involved with regards to gifts in India in order to avoid any further unplanned tax.
What is Gift?
The term Gift has been defined under Income Tax Act, 1961, to clarify its applicability and significance. In short, this is what gift means;
-Amount of money given in cash or cheque
-Property which is immovable such as land or building
-Movable property like shares or jewelry.
What are the tax implications on Gift?
It is introduced under Section 56(2) (V) of the Income tax Act, 1961 for taxing gifts in the hands of recipient. So, as per the law, “Gifts Received by any person are taxed in the hands of recipient under the head 'Income from other Sources' at normal tax rates. Following are some tax implications:
| Kind of gift covered | Monetary threshold | Quantum taxable |
|---|---|---|
| Any sum of money without consideration | Sum > 50,000 | Entire sum of money received |
| Any immovable property such as land, building etc without consideration | Stamp duty value* > Rs 50,000 | Stamp duty value of the property |
| Any immovable property for inadequate consideration | Stamp duty value* exceeds consideration by > Rs 50,000 | Stamp duty value Minus consideration |
| Any property (jewellery, shares, drawings etc) other than immovable property without consideration | Fair market value *(FMV) > Rs 50,000 | FMV of such property |
| Any property other than immovable property for a consideration | FMV exceeds consideration by > Rs 50,000 | FMV Minus consideration (Same example in case of immovable property can be referred) |
Note:
1) Stamp duty value can be higher for various reasons and one such reason can be the time gap between date of registration and date of agreement fixing the consideration. Hence, with regards to gift tax, stamp duty value as on the date of agreement fixing the consideration should keep in mind if below conditions are satisfied.
-Date of agreement and date of registration is different.
-Consideration is either paid in part or can be fully paid by way of account payee cheque or directly transferred to bank account.
2) Tax officer will evaluate value as per Section 50C of the Income tax Act for Stamp duty valuation.
Exemptions
There are certain gifts which do not attract tax, such as;
- Gifts received in the occasion of Marriage.
- Gifts received under will or by way of inheritance.
- Gifts received in contemplation of death of donor or payer.
- Gifts received by any charitable trusts.
- Gifts received by any Local Authority like Panchayat, Municipality.
Conclusion:
Tax Planning is done in case of Gifts received. So, it is important to maintain documents to establish the genuineness of Gift received.