How are Gifts Taxed? - Gift Tax Exemption Relatives List

A "gift" might be money or movable/immovable property that an individual receives from another individual or organisation without making a payment, according to the Income-tax Act definition. In legal terminology, the person or organisation providing the gift is designated the donor, while the gift receiver is known as donee.

However, many a time gifts can also be a part of tax planning/tax evasion. While tax planning done within the framework of law is permissible, tax evasion is prohibited and can be penalised. 

The Government introduced a gift tax in April 1958, regulated by the Gift Tax Act, 1958 (GTA), with an objective to impose taxes on giving and receiving gifts under certain specific circumstances. Gifts in the form of cash, demand drafts, bank cheques, or anything having value were covered. 

However, the GTA was abolished in October 1998 and made all gifts tax-free. But, GTA was reintroduced in a new form and included in the income tax provisions in 2004. It is highly important to have a basic understanding of taxation on gifts in India to avoid any ignorant/unplanned tax outflow.

Gift taxation in India

As per Section 56 of the Income-tax Act,1961 as it stands today which was amended in 2017, gifts received by any person or persons are taxed in the hands of the recipient under the head ‘Income from other sources’ at normal tax rates. We have discussed below what kind of gifts are covered and their quantum to be taxed.

The provisions relating to gift tax have been dealt with under Section 56(2)(x) of the Income Tax Act, 1961. These provisions have been briefly captured in the form of the table below:

Provisions relating to Stamp Duty

Provisions relating to considering the stamp duty value are similar to the provisions as per Section 50C.  Let us discuss the provision for the purpose of gift tax in brief below:

• For the purpose of computing gift tax in the case of immovable property, stamp duty value is what needs to be considered. However, stamp duty value can be higher due to varied reasons, and one of such reasons can be a considerable time gap between the agreement fixing the consideration and the date of registration. Therefore, for the purpose of gift tax, stamp duty value as of the date of agreement fixing the consideration needs to be considered if the following conditions are satisfied:
  • The date of such agreement and the date of registration are different; and
  • Consideration, either fully or in part, is paid by way of an account payee cheque or bank draft or by using an electronic mode of transfer through a bank account on or before the date of agreement for transfer.
• Further, in case the taxpayer has questioned or disputed the stamp duty value adopted by the stamp duty valuation authority as per Section 50C, the tax officer is required to refer the valuation to a valuation officer (VO) and the VO is required to call for records and give an opportunity of being heard to the taxpayer and pass an order in writing of value he has arrived. For the purpose of gift tax, a lower stamp duty value or value arrived by VO is required to be adopted.
• Within the provision of section 56(2)(x), relaxation is provided w.r.t gifting of immovable property if the stamp duty value exceeds the consideration received. Where the stamp duty value of such property exceeds the consideration received, then up to 10%  of such consideration relaxation will be provided, and it will not be considered as income from other sources.

Exemptions from gift tax

As mentioned above, certain specified gifts received by any person from any person(s) attract gift tax. However, here are some exceptions to this.

General caution: Due to extensive tax planning using gifts, gifts in India generally fall under the scrutiny of the tax department, especially if the quantum is huge. Hence, it may be advisable to maintain documentation to establish the genuineness of the gift received and sufficient source of funds with the donor to justify the gift. 

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