GST on Gift Items: Tax Rates, Exemption, and Compliance Guide

In business, gifting is integral to promoting employee morale, managing relationships with clients and partners, and recognising achievements. However, under the Goods and Services Tax (GST) regime, gift items can have tax implications under certain conditions. This article discusses the chargeability of GST on gift items in India, as well as the applicable GST rates. 

GST Rate on Gifts: GST will be levied and collected based on the GST rate and HSN code applicable to the gifted item.

Key Takeaways

• GST applies on gifts given in the course or furtherance of business and between related parties, even if no consideration is involved.
• Gifts by employers to employees are exempt from GST only if the aggregate value in a financial year is up to Rs. 50,000; exceeding this triggers GST on the entire amount.
• The applicable GST rate on gifts is based on the HSN code of the gifted items, as there is no separate code for gifts.
• Personal gifts with no business connection and donations to registered charitable institutions are exempt from GST.

What is a Gift under GST?

Though GST is applicable on gifts beyond a certain monetary value and under specific conditions, the Act does not define the terms 'gifting', 'gift', or 'gift items' explicitly. 

So, tax experts often borrow the definition stated in Section 2(xii) of the now-defunct Gift Tax Act, 1958. As per that definition, 'gift' is a voluntary transfer of property (movable or immovable), without any explicit monetary consideration. 

The Supreme Court of India also defined ‘gifts’ in Corpus Juris Secundum, Volume 38, as a voluntary transfer of property without any consideration or compensation. So, gifting can be considered as an act of generosity and not bound by any contractual obligation. 

GST Applicability on Gift Items

GST is a supply-based indirect taxation system. One can conclude that to constitute a “supply”, it should be made in the course or furtherance of business. Besides, there should be some consideration involved. 

So, the applicability of GST on gift items for businesses hinges on two important concepts. 

1. Consideration - It signifies an exchange of money or equivalent for the supply. The law recognises that transactions made in the course of business can still constitute a supply even without an explicit consideration. Hence, treating gifts as deemed supplies prevents tax avoidance and ensures that GST is appropriately accounted for.
2. Furtherance of business - Requires a business relationship between the parties involved in the transfer of gift items. So, every item transferred as an act of gifting cannot come under the purview of GST. GST becomes applicable only when the act of 'gifting' occurs between two parties associated with a business relationship.     

Following are a few instances, where a transfer of gift will attract GST:

• Transfer between two related parties, such as the employer and employee. 
• Gifting to business clients and business partners. 

GST Rate and HSN Code for Gift Items

The GST Act does not specify any item as a gift item. Any movable or immovable property, goods, or services can be considered as a gift item for deciding the GST applicability. So, there exists no HSN code for gift items. 

Hence, if GST is applicable as per the rules of applicability (as discussed in the previous section), the tax is levied and collected as per the GST rate and HSN code of the gifted item. 

For example, 

• If a company gifts 2-wheelers (non-EV) to its employees, the tax liability would be for HSN 8711, and the applicable rate would be either 18% or 40%.  
• For a gift of a laptop (exceeding the threshold value), the tax bill should be on HSN 8471, while the rate would be 18%. 

GST on Gifts

Gifts Between Related or Distinct Persons in Business:
Under GST law, certain gifts made between related persons or distinct persons (e.g., branches, sister companies) in the course or furtherance of business are treated as taxable supplies even if there is no consideration. This ensures that business-related transfers without payment are taxed.
Example:
A company sends promotional gift baskets to its branch office. This transfer is considered a taxable supply under GST.

Gifts Given by Employer to Employees:
Gifts or benefits given by an employer to employees are exempt from GST if their aggregate value in a financial year does not exceed Rs. 50,000. If the total value exceeds Rs. 50,000, GST applies to the entire value of the gifts, not just the amount exceeding the exemption limit.
Example:
Gifts worth Rs. 40,000 given by a company to an employee during Diwali are exempt from GST. However, if the gifts total Rs. 60,000 in a year, GST is payable on the full Rs. 60,000 value.

Gifts for Personal Purposes:
Gifts received by individuals for personal use, such as birthday or festival gifts from friends or family, do not amount to a supply under GST and are not taxable. There is no GST on genuine personal gifts with no business connection.
Example:
An individual receives gifts from friends on their birthday. These gifts are not subject to GST.

GST Exemption on Gifts

The following types of transfer as free gifts are exempted from GST:

• An employer gifts to employees up to INR 50,000 in a single financial year. 
• Gifts from a person to their "close relatives", including spouse, parents, siblings, children, etc., irrespective of total value.
• Genuinely gratuitous gifts, transferred without any consideration and not in furtherance of business. 
• Donations or gifts made to registered charitable institutions. 

GST Compliance and Documentation for Gift Items

While complying with GST liability on taxable gifts, it is essential to remember the following issues:  

1. Claim of ITC on GST paid - An employer is not eligible to claim input tax credit for GST paid on procuring the gifted items if such gifts are exempt under GST. 
2. Fair market value - It is critical to determine or use the fair market value of gifted items for calculating GST liability accurately. 
3. Reversal of ITC - Any ITC claimed for GST paid while procuring gift items must be reversed if GST is not applicable on the outward supply of gift. 
4. Gifts mixed with purchased items - If a basket of gifts included purchased items, then the total transfer would be considered as a "mixed supply". In such cases, GST will be applicable at the highest rate for the items transferred.