How are Gifts Taxed? - Gift Tax Exemption Relatives List
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 the 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 drafts, 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.
Gift Taxation in India
As per Section 56 of the Income-tax Act,1961 as it stands today which was amended in 2017, gifts received 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)(vii) 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 > Rs.50,000 | The 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 consideration | FMV exceeds consideration by > Rs.50,000 | FMV Minus consideration (The same example in the case of immovable property can be referred to) |
*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 are 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 the 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 the agreement fixing the consideration and the date of registration. Therefore, for the purpose of gift tax, stamp duty value as of the date of agreement fixing the consideration needs to be considered if the following conditions are satisfied:
- The 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 a 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 the 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.
- Within the provision of section 56(2)(x), relaxation is provided w.r.t gifting of immovable property if the stamp duty value exceeds the consideration received. Where the stamp duty value of such property exceeds the consideration received, then up to 10% of such consideration relaxation will be provided, and it will not be considered as income from other sources.
Exemptions from Gift Tax
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 the gift) | Category of donor | Occasion covered |
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. | 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 to 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 the 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 the relative of the Individual | Individual | NA |
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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Quick Summary
According to the Income-tax Act, a gift can be money or property received without payment. Gifts can be part of legal tax planning or illegal evasion. The Gift Tax Act was introduced in 1958, abolished in 1998, then reintroduced in 2004. The Act specifies thresholds and taxes for different types of gifts. Provisions include taxation on monetary, immovable, and other properties. Certain gifts are exempt based on specific donor-donee relationships and occasions.
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