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Gift Tax

Reviewed by Komal | Updated on Sep 30, 2020

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Introduction

In India, income tax is charged on gift transactions. Although there are few exceptions, one has to pay tax on certain gifts received in India. Even a casual exchange of money between friends and family members can bring tax incidence on the person receiving the gift.

Gift tax in India was introduced in the year 1958 and was abolished in 1998. The government reintroduced it in the year 2004 under the head "Income from other sources". Receiving or sending gifts can be a part of money laundering or tax evasion, so the tax officers keep an eye on such transactions through the details filed under the income from other sources head.

What is Gift Tax?

Taxation rules on gifts exchange have been laid down under section 56 (2)(vi) of the Income Tax Act. It states that any gift received with or without consideration in excess of Rs 50,000 in a financial year will be added to your income from other sources and taxed according to your slab.

Who is eligible to pay?

  1. Any individual receiving cash gifts exceeding Rs 50,000 in a single financial year will have to add this income to the gross total income and pay tax accordingly.
  2. If the gift is received by an individual without any consideration and the fair market value of such gift is more than Rs 50,000 then the aggregate value will be taxable in the hands of such individual.
  3. If the gift is received with consideration but for a value which is less than the fair market value and the difference exceeds Rs 50,000, the difference in the FMV and the consideration will be added to the income and taxed accordingly.

A detailed breakdown of the procedure for filling the tax

Here are few exceptions where no tax will be applied on the gift received: 1. Gifts received from the blood relatives 2. Gifts received on the occasion of marriage 3. Gifts received as inheritance or through a will

The income from any such gifts will be added to your income from other sources and taxed according to your slab. You can use any ITR form to report such income and pay tax accordingly.

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