Gifting is a beautiful way to express love and gratitude, whether during festivals, weddings, or after the achievement of personal milestones. However, it is important to remember that gifts carry tax implications in India. Understanding the tax on gifts in India is important to avoid unexpected liabilities, ensure compliance with income tax rules, and enjoy the gifts with peace of mind.
Understanding Taxation of Gifts in India
Certain gifts are taxed in India under the Income Tax Act, 1961.
- The government first brought in taxation on gifts back in 1958, through the Gift Tax Act. It aimed to regulate and tax the transfer of wealth made without consideration. Although this Act was abolished in 1998, tax on gifts was re-introduced into the law in 2004, when the provisions were absorbed under the Income Tax Act.
- Gifts are treated as income in the hands of the recipient under the category ‘Income from Other Sources’. This means that cash, cheques, demand drafts, property, jewellery, or other valuables can all fall within the purview of tax on gifts in India. The taxability also depends on their value and the relationship between the giver and receiver.
If the value of the gift exceeds specified thresholds, gift tax may apply.
For example:
- Any sum of money received as a gift without consideration is taxable if it exceeds ₹50,000 in a financial year.
- Similarly, property (both movable and immovable) may be taxed if its market value exceeds certain limits.
So, while small tokens of love are exempt, larger gifts often attract gift tax rules.
Which Gifts Are Taxed in India?
The provisions of tax on gifts in India are covered under Section 56(2)(vii) of the Income Tax Act. Let’s look at the main categories:
Type of Gift
| Condition for Taxability
| Taxable Amount
|
Monetary Gifts
| Cash, cheque, or bank transfer exceeding ₹50,000 in a financial year.
| Entire amount received is taxable.
|
Immovable Property (without consideration)
| Gift of land/building where stamp duty value exceeds ₹50,000.
| Entire stamp duty value is taxable.
|
Immovable Property (for inadequate consideration)
| If stamp duty value exceeds the consideration paid by more than ₹50,000.
| Difference between stamp duty value and consideration paid.
|
Movable Property (such as jewellery, shares, and artwork)
| Fair market value exceeds ₹50,000.
| Entire fair market value is taxable.
|
Movable Property (for inadequate consideration)
| If FMV exceeds consideration paid by more than ₹50,000.
| Difference between FMV and consideration paid.
|
It is important to declare such taxable gifts while filing your ITR. If you are wondering what ITR is, it refers to Income Tax Return. It is a form you submit to the tax department showing your income, deductions, and tax liabilities. Gifts that qualify as taxable income must be reported in the ITR under ‘Income from Other Sources’.
To estimate the potential liability, you can use an income tax calculator. This tool can help you compute how gifts affect your overall taxable income.
Exemption on Gift Tax in India**
You may find it a relief to know that not all gifts are taxable. There are specific exemptions on tax on gifts in India:
From Relatives
Gifts received from certain relatives are completely exempt, regardless of the value. These relatives include:
i. Your spouse.
ii. Your or your spouse’s brother or sister.
iii. Your or your spouse’s parents or grandparents (lineal ascendants).
iv. Your or your spouse’s children or grandchildren (lineal descendants).
v. The spouses of any of the relatives mentioned above.
On Special Occasions
Gifts received on the occasion of your marriage are entirely exempt from tax. Gifts received under a will or by way of inheritance are also exempt. Additionally, any gift received in contemplation of the death of the donor are not eligible for tax on gifts in India.
From Institutions
Gifts received from any local authority, a registered charitable or religious trust, or any fund/institution/educational/hospital trust mentioned in Section 10(23C) of the Income Tax Act, are exempt.
These exemptions make gifting within families and on special occasions worry-free. However, when receiving gifts from friends or distant relatives, keep the ₹50,000 threshold in mind.
For long-term planning, exemptions can even play a role in tax savings. For instance, gifting money to parents or children and allowing them to invest it can reduce your taxable income, as the income generated will be taxed in their hands instead.
It is also important to distinguish this gift tax from other types of investment taxation, such as ULIP taxation, which has its own set of rules upon maturity or surrender.
Understand Stamp Duty on Gift Deeds
When gifting immovable property, like land or a house, a legal document called a Gift Deed is mandatory. To make this deed legally valid and admissible in court, it must be stamped and registered. This is where stamp duty comes in.
- Stamp duty on a gift deed is a state government tax levied on the transfer of property as a gift. The rate of stamp duty varies from state to state. It is usually a percentage of the property's market value or the stamp duty value, whichever is higher.
- However, many states offer concessions or lower rates if the gift is made to a close relative, like a spouse, parents, or children.
- Gift deeds can cover both movable (such as jewellery or shares) and immovable property. However, only existing properties can be gifted, not future or contingent assets.
- Properly documenting a gift with a registered deed is not just a legal formality; it serves as crucial proof of the transaction. This documentation can be invaluable if the Income Tax Department has questions about the source of the asset in the future.
Gifts bring joy, but they can also bring tax implications. Knowing the rules around tax on gifts in India can help you stay compliant and avoid surprises. While gifts from relatives and on special occasions are exempt, others may be taxable if they exceed ₹50,000. For property transfers, stamp duty on gift deeds makes them legally valid. Always use tools like a tax calculator and explore other tax-efficient options such as ULIPs and ELSS for smarter planning. With awareness, gifting remains both heartfelt and financially sound.
** Tax exemptions are as per applicable tax laws from time to time.
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