Taxability of Gifts under Income Tax

TAXABILITY OF GIFTS UNDER INCOME TAX

It is very common in India to receive gifts from friends and relatives. The gifts are received generally at the time of some festivals, occasions, marriages, etc.

The gifts can be in the form of cash, kind i.e. movable or immovable properties, shares, or any other property.

A question that comes to the mind of everyone who receives a gift is whether the gift is chargeable to tax in his/her hands as per Income Tax laws in India.

In this blog, we will look at various aspects of taxability or otherwise of Gifts as per Income Tax laws in India.

First, we start with what is an Exempt Gift i.e. Gifts that are not taxable as per Income Tax in India.

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Provisions under Income Tax regarding Gifts

Section 56(2)(x) deals with the taxability or otherwise of Gifts received from friends and relatives.

GIFTS THAT ARE EXEMPT UNDER INCOME TAX

As per this Section, the following amounts i.e. Gifts are not taxable :

1. Any Gift received from Relatives whether in cash, kind, movable or immovable property no matter what the amount involved.

   
   

2. Gift received at the time of marriage of an Individual is completely exempt. It may be from Relatives or persons other than relatives.

   
   

3. A gift received under a will or by way of inheritance is also completely exempt i.e. If someone makes a will and provides money or property to others (relative or to any other person), then that amount will not be taxable in the hands of the receiver. The same is the case with the inheritance of any property by any person.

   
   

4. Any amount received from any Institution/Trust/Medical Institution/Educational Institution which is registered u/s 10 or section 12A of the Income Tax is also fully exempt.

After having analyzed what is not taxable, we move to study as to what are taxable Gifts under Income Tax laws in India.

GIFTS THAT ARE TAXABLE UNDER INCOME TAX

1.Any sum of money received without consideration of more than Rs. 50000/- during the particular year will be taxable in the hands of the recipient. The value of Rs.50000/- is the aggregate value of all sum of money received during a particular Financial year.

2.Any property i.e. movable or immovable received during a year the fair market value of which exceeds Rs.50000/- will be taxable in the hands of the recipient. For taking the fair market value of immovable property, it will be stamp duty valuation which will be relevant. In the case of other properties such as shares, movable property, etc. the method of arriving at fair market value has been separately prescribed under the Income Tax Act.

From the above, it is clear that in case of any gift received from persons other than relatives, a limit of Rs.50000/- has to be checked. All gifts received more than Rs.50000/- will be taxed at normal rates of Income Tax under section 56(2).

There are two important definitions which are very relevant for the above purposes :

Definition of Relatives for Gifts -

"Relative" means,—

(i) In case of an individual—

(A) spouse of the individual;

(B) brother or sister of the individual;

(C) brother or sister of the spouse of the individual;

(D) brother or sister of either of the parents of the individual;

(E) any lineal ascendant or descendant of the individual;

(F) any lineal ascendant or descendant of the spouse of the individual;

(G) spouse of the person referred to in items (B) to (F); and

(ii) In the case of a Hindu undivided family, any member thereof;

i.e. Gifts received from all the above-mentioned relatives are completely exempt irrespective of amount.

2. Definition of Property for Gifts -

(i) immovable property being land or building or both;

(ii) shares and securities;

(iii) jewellery;

(iv) archaeological collections;

(v) drawings;

(vi) paintings;

(vii) sculptures;

(viii) any work of art;

(ix) bullion;

Thus all the things mentioned above will come under the definition of property and may be taxed depending on the amount and receipt from relatives or otherwise as already discussed above.

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