How are Gifts Taxed?

India is a country of close-knitted families and having a 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 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 penalized.

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 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.

Gift taxation in India

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:

*Value adopted by stamp duty authority for the purpose of stamp duty

Provisions relating to 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:

• 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 reasons can be a 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 the following conditions are satisfied:
  • 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 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 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.

Exemptions from gift tax

As mentioned above, certain specified gifts received by any person from any person/persons 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 gift received and sufficient source of funds with the donor to justify the gift.  

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