Gifts, who would not like to receive them? Gift is something we all like to receive from our beloved ones. But, a very common and frequent question running in the mind of taxpayers is the taxability of gifts in India.
If I receive a gift from my father, would it be taxable in my hands? Do I need to pay gift tax on it?
If I gift a car to my Fiancée, is it taxable in the hands of my fiancée? What are the tax implications?
In this post let’s discuss – What is a Gift? How to know if the gift received by you is subject to income tax? List of Relatives from whom you can take Gift(s) without worrying about income tax implications. How does classification of property i.e., movable & immovable has an impact on Gifts? – Let’s make this simple and easy to understand 🙂
What is a Gift?
A gift is Money or House, Shares, Jewellery etc. that is received without any consideration, or simply an asset received without making a payment against it and is a capital asset for the Recipient. It can be in the form of cash, movable property or immovable property.
(A capital asset typically refers to anything the individual owns for personal or investment purposes.)
The person who is giving a gift is called the ‘Donor‘ and the person receiving the gift is known as ‘Donee‘.
Do I have to pay income tax on Gift?
Below are the important points that you should be aware of regarding tax implications on Gifts.
- Gifts up to Rs 50,000 a year: A recipient will not be assessed to any tax if the value of gift is less than Rs 50,000 a year irrespective of who gifts the money. Also, you need to add the total value of all the gifts received in a financial year and if the total value is less than Rs 50k then it is exempted from income tax.
- Gifts from Relatives : Below is the list of ‘Relatives’ from whom you can receive gift(s) and there is no need to pay any income tax; (you can receive unlimited monetary or non-monetary gifts).
- Brother’s Wife
- Sister’s Husband
- Spouse (Your wife / Your husband, if married)
- Spouse’s Brother
- Spouse’s Brother’s wife
- Spouse’s Sister
- Spouse’s Sister’s husband
- Spouse’s Father
- Spouse’s Mother
- Spouse’s Grand Father
- Spouse’s Grand Mother
- Spouse’s Great Grand Father
- Spouse’s Great Grand Mother
- Mother’s Brother
- Mother’s Brother’s Wife
- Mother’s Sister
- Mother’s Sister’s Husband
- Father’s Brother
- Father’s Brother’s Wife
- Father’s Sister
- Father’s Sister’s Husband
- Grand Father
- Grand Mother
- Great Grand Father
- Great Grand Mother
- Son’s Wife
- Daughter’s Husband
- Grand Son
- Grand Son’s Wife
- Grand Daughter
- Grand Daughter’s Husband
- Non Relatives (non-family) – If you receive a gift from an individual who is not a relative (any other person who is not in the above list is treated as non-relative for Gift tax purposes) then the value of the gift can be subject to income tax.
- Type of Gift
- Cash or Money – A gift can be in the form of cash or money. (Latest update : Cash Gifts above Rs 2 Lakh can be subject to Penalty u/s 269ST w.e.f 1st April, 2017, even if the gifts are from family members. Read : ‘Rs 2 Lakh Cash Transaction Limit | Details & Examples‘.)
- Movable (or) Immovable Assets / Property – The income tax Act clearly defines the list of immovable and prescribed movable properties for the purpose of Gift tax. If you receive a gift (movable or immovable) from a relative then no tax will be levied. However, if you receive a gift (movable or immovable) from non-relative then up to Rs 50,000 (stamp duty value of the immovable property or Fair market value of movable property) is tax-exempted.
- Land or building or both (immovable)
- Shares & other financial securities
- Jewellary (precious metals, ornaments, precious stones, etc.,)
- Archaeological collections
- Drawings / Paintings
- Sculptures or any work of Art
- Bullion – Gold bars, Silver bars etc.,
- None of the above – Any other assets which is not listed in the above list will not be charged to tax. For example : If you receive car as a gift from a relative or non-relative, there will not be any tax on it as ‘car’ is not listed in the prescribed list of movable properties as per the IT Act.
- Occasion – As per the provision of taxation of gifts, any Gift received from any person on the occasion of the marriage is not liable to income tax. There is no monetary limit attached to this exemption. But, taxes are applicable if gifts are received at the time of Engagement or marriage anniversary.
- If the total value of gifts received is less than Rs 50,000 in a financial year, no gift tax is applicable.
- If you receive gifts on the occasion of your marriage, no tax implications. The gifts can be from a relative or non-family member and movable/immovable ones.
- If you receive gifts from any of your family member (as in the list), no need to worry about tax implications
- If you receive gift(s) from non-family members, kindly first check if the stamp duty value or Fair market value of the gift is less than Rs 50k or not. If the value of gift (movable or immovable) is less than Rs 50,000 then no need to pay any tax on it. If it is more than Rs 50,000 then the entire stamp duty value of the immovable property or fair market value of movable property will be charged to tax in the hands of the receiver.
- Illustration 1 : Mr Salman receives Rs 1cr worth car as a gift from his friend on the occasion of his marriage. Is this gift subject to taxes?
- First check – Is it above Rs 50k? Yes.
- Second Check – Is it from a family member? No.
- Third Check – Is the gift (type) listed in the prescribed list of movable or immovable properties? No. Car is not listed in the prescribed list of movable properties. So, the gift is not charged to tax.
- Fourth Check – Is the gift received on the occasion of marriage? Yes. So, no taxes will be levied.
- Illustration 2 – Mr Salman gifts a Diamond necklace worth Rs 2 cr to his Fiancee (Katrina), is this subject to taxes in the hands of his fiancée?
- First check – Is it above Rs 50k? Yes.
- Second Check – Is it from a family member? No. Fiancee is not a family member.
- Third Check – Is the gift (type) listed in the prescribed list of movable or immovable properties? Yes. Diamond necklace is a movable property and the value is more than Rs 50k so the entire gift value is subject to taxes in the hands of Katrina.
- Fourth Check – Is the gift received on the occasion of marriage? No.
- Illustration 3 : Mr. Aamir gifts his house to his friend Kajol. The market value of the building is Rs. 8,40,000 and the value of the building adopted by the Stamp Valuation Authority for charging stamp duty is Rs. 9,00,000. What is the tax treatment in this case?
- In the given case, the property is a capital asset for Kajol. The property is received from his friend (friend is not covered in the definition of relative), property is not received on any specified occasions and the stamp duty value of the property exceeds Rs. 50,000. In other words, all the conditions required to tax the gift are satisfied and hence the stamp duty value of the property i.e. Rs. 9,00,000 will be charged to tax in the hands of Kajol. It will be charged to tax under the head “Income from other sources”.
- Illustration 4 : Mr. Kanhaiya received following gifts during the financial year 2015-16:
* Rs. 2,80,000 from his friend residing in Canada.
* Rs. 25,000 from his elder Sister residing in Bangalore.
* Rs. 84,000 worth of Shares from his friend residing in Varanasi . What will be the tax treatment of these gifts?
- Rs 2.8 Lakh is taxable as he received the gift from non-family member. The gift of Rs 25k will not be charged to tax because ‘elder sister’ is covered in the definition of ‘relative’ and Gift of Rs 84k worth of company shares will be charged to tax. Shares are prescribed movable property and their worth is more than Rs 50,000. Also, the gift is from his friend who is not a ‘relative’.
- The following list of gifts are fully exempted from Tax whether they are received as Cash, or any other form;.
- Gift received under a Will or by way of inheritance.
- Gift in contemplation of death of the donor.
- Gift from any local authority.
- Gift from any fund or foundation or university or other educational institution or hospital or any trust or any institution referred to in Section 10 (23C).
- Gift from any trust or institution, which is registered as a public charitable trust or institution under Section 12AA.
- Any sum received from relatives or on occasion of marriage, is not to be included under the head ‘Income from Other Sources’ while filing your taxes. There is no requirement to show these gifts in ITRs as it does not fall under the definition of Income chargeable to tax.
- But, if you get a property through a registered gift deed (wherein your PAN is quoted), you can show the value of the gift received as ‘Exempted Income‘ in ITR. This is to avoid any scrutiny by income tax authorities in the future. Also, whenever you receive any gift it is prudent to have gift deed executed.
- If you receive gift (cash/movable/immovable property) from non-family member which is above Rs 50,000 then you can show it under the head ‘income from other sources’. You have to pay taxes as per your income tax slab rate.
- Kindly note that rules of clubbing of income comes into picture if you gift a certain amount to your spouse, or minor children or Son’s wife. Any income earned by the recipient on the gift shall be clubbed with the income of donor (you).
Budget 2019-20 (latest update) :
- Currently gifts given by Indian residents to non-resident Indians – apart from the specified list of relatives – would be claimed as non-taxable. Because, the onus was on the recipient to disclose such gifts and then pay the gift tax.
- But, budget 2019-20 proposed to amend the rules to make it mandatory for recipients (NRI) to disclose such gifts received if they originate in India and then pay a tax on it.
- The value of these gifts is added to the income (exceeding Rs 50,000), if made to anyone apart from the specified relatives or blood relations and will be taxed as per the normal slab rates applicable to resident Indians, except if a double taxation treaty prohibits the same.
- The changes will be applied for all such transfers made on or after July 5, 2019. This amendment will take effect from April 1, 2020 and will, apply in relation to the assessment year 2020-21 and subsequent assessment years.
I hope you like this post. Kindly share your views & comments. Thank you!
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(Image courtesy of iosphere at FreeDigitalPhotos.net) (Post Published Date : 21-April-2016)