Gifts are treated as income under the Income Tax Act. If the value of the gift exceeds certain limits, it may be taxed as “Income from Other Sources”. However, there are certain exemptions available if gifts are received from certain persons or on certain occasions. Gifts received within a value of Rs. 50,000 is always exempt.
In this article, we’ll help you understand how gift taxation works—what types of gifts are taxable, what the thresholds are, and what exemptions might apply.
As per Section 56 of the Income-tax Act,1961 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 for exemption | Quantum taxable on exceeding threshold |
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. |
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 |
*Value adopted by stamp duty authority for the purpose of stamp duty.
**Example 1:Stamp duty value Rs.2 lakhs 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.1.6 lakh, the taxable gift is Nil as stamp duty value does not exceed consideration by > Rs.50,000
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:
Tip: Whenever gifts are crossing the threshold limit, or becomes taxable, it is recommended to prepare a gift deed and document the same safely. This will be a proof for the source of the gift income, which can be used as a response against tax notices.
As mentioned above, certain specified gifts received by any person from any person(s) attract gift tax. However, here are some exceptions to this.
Gifts received on the following occasions are exempt, irrespective of from whom the gift is received:
A summarised table showing the above provisions is presented below:
Category of Donee (recipient of the gift) | Category of Donor | Occasion covered |
Individual | Relative | 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 | NA |
Any person | From any institution referred to Section 10(23C) | NA |
Any person | Any trust registered under section 12A or section 12AA | NA |
Any charitable or religious and other trust [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.