India is a country of close knitted families and having lot of reasons to celebrate owing to its diversified culture, customs and religion. Numerous occasions arise where gifts are exchanged. In fact gifting each other is a symbol of love and affection and can also be a symbol of social status. However, many a times 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 gift tax in April 1958 regulated by Gift Tax Act, 1958 (The GTA) with an objective to impose taxes on giving and receiving gifts under certain specific circumstances. Gifts in the form of cash, demand draft, bank cheques or anything having a value were covered. However, the GTA was abolished in October 1998 and made all gifts tax free. But, Gift Tax 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.
1. Gift taxation in India
As per the law as it stands today which was amended in 2017, gift received by any person by any person or persons are taxed in the hands of recipient under the head ‘Income from other sources’ at normal tax rates. We have discussed below what kind of gifts are covered and its 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:
|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
Example 1:Stamp duty value Rs 2,00,000 Consideration Rs 75,000.Taxable amount is Rs 1.25 lakhs (stamp duty value exceeds consideration by > Rs 50,000)
In Example 1, if consideration is Rs 1,60,000, taxable gift is is Nil as stamp duty value does not exceed consideration by > Rs 50,000
|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)|
*Value adopted by stamp duty authority for the purpose of stamp duty
2. Provisions relating to Stamp Duty
Provisions relating to considering the stamp duty value is similar to the provisions as per Section 50C. We have discussed the provision for the purpose of gift tax in brief below:
For the purpose of computing gift tax in 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 reason can be considerable time gap between agreement fixing the consideration and date of registration. Therefore, for the purpose of gift tax, stamp duty value as on the date of agreement fixing the consideration need to be considered if following conditions are satisfied:
- Date of such agreement and 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 electronic mode of transfer through bank account on or before date of agreement for transfer
Further, in case the taxpayer has questioned or disputed the stamp duty value adopted by stamp duty valuation authority as per Section 50C, 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 taxpayer and pass an order in writing of value he has arrived. For the purpose of gift tax, lower of stamp duty value or value arrived by VO is required to be adopted.
3. Exemptions from gift tax
As mentioned above, certain specified gifts received by any person from any person/persons attracts gift tax. However, here are some exceptions to this
|Category of donee(recipient of gift)||Category of donor||Occasion covered|
(It may be relevant to note here that while gift from defined relative is not taxable for donee, income from such gifts may in some cases taxable in the hands of donor itself – Example clubbing provisions, deemed owner concept in house property etc)
|Relative – spouse, brother and sister of self and spouse, brother or sister of parents or parents in law, any lineal ascendant or descendant of self or spouse, spouse of any of the relatives mentioned here.||NA|
|Individual||Any person||Marriage of Individual|
|Any person||Any person||Under a will or by way of inheritance|
|Any person||Individual||In contemplation of death of donor or payer|
|Any person||Local authority – Panchayat, Municipality, Municipal Committee and District Board, Cantonment Board||NA|
|Any person||from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred in Section 10(23C)||NA|
|Any person||Any charitable or religious trust registered under section 12A or section 12AA||NA|
|Any fund or trust or institution or any university or other educational institution or any hospital or other medical institution established for charitable/religious/educational /philanthropic purpose and approved by prescribed authority [Refer Section 10(23C) (iv) (v) (vi) and (via)]||Any person||NA|
|Members of HUF||HUF||Any distribution of capital assets on total or partial partition of a HUF|
|Trust created or established solely for the benefit of relative of the Individual||Individual||NA|
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 genuineness of gift received and sufficient source of funds with the donor to justify the gift.