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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 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 draft, 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.
As per the law, as it stands today which was amended in 2017, gifts received by any person 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:
|Kind of gift covered
|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. The taxable amount is Rs 1.25 lakh (stamp duty value exceeds consideration by > Rs 50,000)
Example 2 In Example 1, if consideration is Rs 1,60,000, the taxable gift is Nil as stamp duty value does not exceed consideration by > Rs 50,000
|Any property (jewellery, shares, drawings, etc.) other than an 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
Provisions relating to considering the stamp duty value is similar to the provisions as per Section 50C. Let us discuss the provision for the purpose of gift tax in brief below:
As mentioned above, certain specified gifts received by any person from any person(s) attract gift tax. However, here are some exceptions to this.
|Category of donee (recipient of gift)
|Category of donor
|Individual (It may be relevant to note here that while a gift from a defined relative is not taxable for the donee, income from such gifts may in some cases taxable in the hands of the donor itself – For example, clubbing provisions, deemed owner concept in the 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.
|Marriage of Individual
|Under a will or by way of inheritance
|In contemplation of death of donor or payer
|Local authority – Panchayat, Municipality, Municipal Committee and District Board, Cantonment Board
|from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to Section 10(23C)
|Any charitable or religious trust registered under section 12A or section 12AA
|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 the prescribed authority. [Refer Section 10(23C) (iv) (v) (vi) and (via)]
|Members of HUF
|Any distribution of capital assets on total or partial partition of a HUF
|Trust created or established solely for the benefit of the relative of the Individual
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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