Gifting is an integral part of Indian culture, whether it's for a celebration, special occasion, or a simple token of appreciation. However, not all gifts are tax-free in India. The taxation of gifts is governed by the Income Tax Act, 1961, and the treatment varies depending on several factors such as the relationship between the giver and receiver, the value of the gift, and the type of gift.
In this blog, we’ll break down the taxability of gifts in India, explain when gift tax applies, and provide insights into the exceptions and exemptions available under the law.
1. What is Considered a Gift Under Indian Tax Laws?
A gift, according to the Income Tax Act, is defined as any transfer of money or property from one person to another without receiving anything of equal value in return. The gift can be in the form of:
Cash or Cheques
Shares or Securities
Movable Property (like gold, jewelry, art)
Immovable Property (such as land, house)
However, to be classified as a gift, there must be no expectation of compensation or return by the recipient.
2. Taxability of Gifts Under Income Tax Act
The tax treatment of gifts depends on various factors, including the relationship between the giver and the receiver, the amount of the gift, and the source of the gift.
A. Gifts Received from Relatives
In India, gifts received from relatives are exempt from tax under Section 56 of the Income Tax Act, regardless of their value.
Relatives include:
Parents
Siblings (brother, sister)
Spouse
Children (biological or adopted)
Grandparents, etc.
For example, if you receive a gift of ₹2,00,000 from your mother or spouse, it will be exempt from tax. The relationship plays a crucial role in determining whether the gift is taxable.
B. Gifts Received from Non-Relatives
When you receive gifts from someone who is not a relative, the taxability depends on the value of the gift:
If the total value of gifts exceeds ₹50,000 in a year:Any gifts received from non-relatives exceeding ₹50,000 will be taxable as income under "Income from Other Sources". The entire value of the gift will be subject to tax.
If the value is ₹50,000 or less:If the gifts from non-relatives do not exceed ₹50,000 in aggregate during the financial year, they are not taxable.
Example:
If you receive ₹40,000 in cash and ₹20,000 worth of jewelry from a friend, the total value is ₹60,000. This ₹60,000 will be taxed as income.
Immovable Property (Land/House):
Gifts of immovable property (such as land or a house) from non-relatives are taxable if the fair market value exceeds ₹50,000. The entire value of the property will be taxed.
C. Taxation of Gifts Received on Special Occasions
Certain gifts, even if received from non-relatives, are exempt from tax if they are given on special occasions like marriage.
Marriage Gifts: Gifts received on the occasion of your marriage are exempt from tax, regardless of their value or the relationship with the giver. This applies to both cash gifts and assets like jewelry, property, etc.
3. Taxable Gifts Under Section 56(2)(x)
The Income Tax Act (Section 56(2)(x)) outlines specific conditions under which gifts are taxable. These include:
Non-relatives gifting more than ₹50,000 in a year.
Gifts of immovable property (real estate) from non-relatives.
Gifts of shares, jewelry, or any movable property exceeding ₹50,000 in value from non-relatives.
These taxable gifts are added to the recipient’s total income and taxed as per the individual’s tax slab rate.
4. Exemptions for Certain Gifts
Some gifts are exempt from tax under certain conditions. These exemptions apply under Section 56 and include:
Gifts received from relatives (as explained earlier).
Gifts on the occasion of marriage.
Gifts received from a will or inheritance: Any gift or inheritance received under a will is not taxable.
Gifts received under a trust: If the gift is made under a trust as per the law, it is exempt.
Gifts from a political party or charitable organization: Gifts received from recognized charitable institutions are also exempt.
5. How to Calculate the Tax on Gifts?
If the gift you receive is taxable, it will be added to your income for that financial year and taxed as per your income tax slab. For example:
If you receive ₹80,000 as a gift from a non-relative, ₹30,000 will be taxed (the first ₹50,000 is exempt).
If you receive ₹2,00,000 worth of gold from a friend, this amount will be taxed, as the total exceeds ₹50,000.
6. How to Report Gifts in Income Tax Returns
If you receive a taxable gift:
You will need to report the total amount of the taxable gift under "Income from Other Sources" in your ITR form.
If the gift is in the form of property, you must report the fair market value of the property.
It’s crucial to maintain proper documentation of the gifts you receive, including the identity of the giver, the relationship, and the value of the gift.
7. Tax on Gifts to Non-Residents
Non-resident Indians (NRIs) are subject to the same taxation rules for gifts as resident Indians. However, gifts from non-resident relatives are exempt from tax as long as the gift complies with the same criteria as domestic gifts. Gifts from non-relatives, however, would still be subject to tax if the value exceeds ₹50,000.
8. Special Considerations:
Gifts to Minor Children: Any gifts received by a minor child are included in the parent's income and taxed as per the parent’s tax slab.
Gift Tax on Securities: Gifts in the form of shares, bonds, or mutual funds will be taxed at their fair market value if they are given by non-relatives and exceed the ₹50,000 exemption limit.
Conclusion
Understanding the taxation of gifts in India is crucial to avoid surprises when filing your tax returns. While gifts from relatives are generally exempt from tax, gifts from non-relatives over ₹50,000 in value will be taxable. Always keep proper records of gifts you receive, especially if they come from non-relatives, and report them accurately in your tax returns.
By staying informed about gift tax exemptions and exceptions, you can ensure that your gifts are handled in a tax-efficient manner. If in doubt, consult a tax professional or financial advisor to help you navigate the tax implications of gifting.
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