Often we are intrigued about tax implications on gift money, and how it is taxed? Is it taxed to the donor or to the recipient? Well, this post will consider certain scenarios and try to explain them in as much detail as possible:
What are Gifts?
A gift is Money or House, Shares, Jewellery etc. that is received without 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 / immovable property.
Gifts & Tax Rules
Let us go over some ground rules and scenarios to determine who foots the tax bill, and in what circumstances it is exempt.
1) Gifts up to Rs 50,000 a year: A recipient will not be assessed any tax if the value of gift is less than Rs 50,000 a year irrespective of who gifts the money. But, if the amount is over 50,000 then it will be fully added to taxable income of the recipient.
Scenario 1: If the value of gift received is Rs 49,000 then you wouldn’t have to pay any tax on the gift value.
Scenario 2: If the value of gift received is Rs 55,000 then total 55,000 (and not just 5,000 which is over the 50,000 mark) will be included in taxable income.
2) Gifts from relatives: While the general rule of Rs 50,000 holds good for any donor in general like a friend, what if the donor is a blood relative? Well in such cases, the total amount received is fully exempt from taxation.
A relative would include any of the following for gift transactions:
1) Spouse of the individual
2) Brother or sister of the individual
3) Brother or sister of the spouse of the individual
4) Brother or sister of either of the parents of the individual
5) Any lineal ascendant or descendant of the individuals
6) Any lineal ascendant or descendant of spouse of the individuals
7) Spouse of the persons referred to in (2) to (6)
Let us understand how it works.
Scenario 3: If a friend gifts you Rs 51,000 then the full amount is Taxable
Scenario 4: If any of your above relatives gifts you Rs 51,000 then the full amount is exempt from taxation.
Gifts & Clubbing of Income
While the gift received is fully exempt, the income received on it isn’t.
In order to check tax evasion and discourage tax evaders from exploiting the loopholes, income tax department further segregates the recipients based on their dependency on the donor. It is called clubbing of income.
Here is How Clubbing of Income Works;
- Income on the gift received by Spouse/Minor Children – If a person decides to gift a certain amount to his spouse, or minor children then any income earned by the recipient on it shall be clubbed with the income of donor.
- Income on the gifts received by other relatives – In cases where the recipient is anyone other than spouse or minor children, the income generated will be taxed in the hands of the recipient.
Let’s go through a couple of scenarios to see how it works. Suppose you gift Rs 5 lakh to recipients in each of the following scenarios, and if each one of them puts the money into fixed deposit at 10% interest per annum, which works out to be Rs 50,000 a year this is how it would work:
Scenario 5: If the recipient is your wife then the income earned i.e. 50,000 will be added to your income for taxation, and you would pay taxes on that based on your tax slab. However if she reinvests this Rs 50,000 and earn Rs 5,000 (10% of 50,000) as interest, then the income on reinvestment, which in this case amounts to Rs 5,000 will be considered as her own income.
Scenario 6: If the recipient is your mother then the income earned will be taxed in her hands. So if she is retired and doesn’t have any other income, then she wouldn’t have to pay any tax as the income would be less than her basic exemption limit of Rs 3, 00,000.
Latest Article : Property Gift Deed – All you wanted to know!
Special Gifts & Income Tax Exemption
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.
Marriage Gifts & Income Tax Exemption
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.
Gifts & Income Tax Return (ITR)
Do you need to report or show the gift received in Income Tax Return?
As per the above points 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.
However, 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.
(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. Kindly read my latest article: ‘Rs 2 Lakh Cash Transaction Limit | Details & Examples‘.)
Continue reading :Â
- List of Relatives from whom you can take Gift(s) without worrying about income tax implications.
- Sale of Inherited (or) Gifted Property & Tax implications on Capital Gains
- Can a Mortgaged property be Gifted, Willed or Inherited?
Note: The above article has been provided by Quicko.com. Quicko is engaged in assisting in online ITR preparation and filing. You can sign up with Quicko.com and efile your tax returns within minutes absolutely free. The author can be contacted at anand@quicko.com.
(Image courtesy of Master isolated images at FreeDigitalPhotos.net)
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Received some money by way of gift to my wife around Rs 8 lakhs to my spouse ,he is my wifes father brother . he is 90 years old , whether I have to pay tax, I have clear ed all my loans Home Loan , outside laon , nothing is balance.( K. Ananth Raman) Reply please to mail id
I have received 10 lakhs from my father and invested in monthly dividend paying mutual fund and earned 120000 in a year. I need to file itr2 for the purpose of showing gift received from father in schedule EI. I have no other taxable income other than this. Now do I have to file return in the next financial year, since my taxable income will be much less than 250000.
Hi Sreekanth, you are doing a great job through your blog. Excellent!
Coming to my query:
I have been giving 10-15k as monthly family expenses to my wife who is a homemaker. From that amount, she spends for some expenses and rest of the amount she has been investing in mutual funds, FDs and NSCs. She has been filing her own ITR showing interests from FD and NSC as “income from other sources” and the monthly money I gifted her as “exempt” income. Her taxable income is less than 2.5 lakhs per annum, whereas I fall in 30% tax bracket. Now the query: is there any problem with this ITR arrangement? ( As of now I don’t club her interest income).
Dear Agastha,
In your case, clubbing of income provisions do apply.
Suggest you to kindly go though the below article for better understanding;
Clubbing of Income of Spouse & Child : Definition, Scenarios, Examples & Exceptions
Hello sir , my mother is a family pensioner, and also is a pensioner by herself, she having a bracket of tax 20 percent slab.
If she may donate some money to their grand children’s (daughters) and receive some exemption of tax liability.
Hi Sir – Thanks for this informative article. I have some questions related to it. Its now 2020 and this article was written 3 years back, so also just want to make sure rules and scenarios are still the same.
In FY 2019-20, I transferred Rs 15 Lakh through electronic banking (no cash) in multiple transactions to my mother. I understand from your article that this amount is not taxable as its transacted between blood relatives. We did not make any gift deed between us for this transaction as we thought its clearly visible in the electronic records. Though we are showing the interest earned (around 1 Lakh Rs) from this money as her taxable income.
Now my questions are following –
First: Is it mandatory to create a gift deed for such transactions? If yes, what are our options now as it has already been more than a year since we did these transactions.
Second: Regarding reporting this 15 Lakh Rs in her tax return. I see there is a section for reporting exempt income in the tax return. But is it mandatory for her to report this exempt gift income from a close relative as Exempt income in the ITR? If yes, do you know if there is a penalty (and how much/income tax section number) for not reporting it?
The reason we are shying from showing this money as exempt income, even if its white money and clearly visible in both our bank statements is because we have heard some cases where reporting such income puts one under audits, which being common people, we definitely want to avoid.
Can you please advice on the above queries?
Thanks in advance !