Taxability of Gifts under Income Tax Act

Are you thinking of gifting cash or asset to someone? Or have you received a Gift from someone? Are you aware of your tax liability with respect to such gifts?

Generally people do not have adequate knowledge of taxation of gifts and the problem is compounded by the change in laws related to gift tax.

Brief History

Gift Tax used to exist as a separate law in India, governed by the Gift Tax Act, 1958. As per the Gift Tax Act 1958, all gifts in excess of Rs. 25,000, in the form of cash, draft, check or others, received from one who does not have blood relations with the recipient, were taxable.

Financial act 1998 had deleted gift tax act w.e.f.1.10.98. All the gifts made on or after the date were free from tax.

In 2004, Gift Tax was again revived partially and a new provision was introduced in the Income Tax Act 1961 under section 56 (2). These provisions have further undergone changes in years 2006 and 2009.

Taxation of Gift – Current Rules

Since 2009, the taxation rule related to Gift Tax u/s 56(2) of the Income Tax Rule reads as under:

“where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009,—

(a) Any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;

96[(b) any immovable property, without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;]

(c) any property, other than immovable property,—

(i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;

(ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration”

Thus, we can say the following items are considered gifts and added to the taxable income of the receiver under the head ‘Income from Other Sources’

  • Sums of money received without consideration where the aggregate amount of such money received in year exceeds Rs. 50,000/-
  • Immoveable property received without consideration where the stamp duty of the property exceeds Rs. 50,000/-
  • Property other the immoveable property
    1. received without consideration and the aggregate fair market value of the property exceeds Rs. 50,000/- OR
    2. received for inadequate consideration where the aggregate difference between fair market value and consideration paid (fair market value – consideration paid) exceeds Rs. 50,000/-

Property Defined

For the purpose of Gift Tax, property is defined by the Income Tax Act as under

  • immovable property being land or building or both;
  • shares and securities;
  • jewellery;
  • archaeological collections;
  • drawings;
  • paintings;
  • sculptures;
  • any work of art; or
  • bullion;

Exceptions

Some transactions even if they fall within the purview of the above rules are exempted from taxability in the hands of receiver as Gift. The exemptions to this rule are listed below:

“Provided further that this clause shall not apply to any sum of money or any property received—

(a) from any relative; or

(b) on the occasion of the marriage of the individual; or

(c) under a will or by way of inheritance; or

(d) in contemplation of death of the payer or donor, as the case may be; or

(e) from any local authority as defined in the Explanation to clause (20) of section 10; or

(f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or

(g) from any trust or institution registered under section 12AA.”

Relative Defined

For the purpose of Gift Tax, Relative is defined by the Income Tax Act as under

  •  in case of an individual—
    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 individual;
    6. any lineal ascendant or descendant of the spouse of the individual;
    7. spouse of the person referred to in items (B) to (F); and
  • in case of a Hindu undivided family, any member thereof;

What happens if you have any Gift in the previous year taxable under Income Tax Act?

If any income, property received by you falls under the purview of Gift taxable under Income Tax Act, then the same will be added to your income under the head ‘Income from other Sources’. You will be liable to pay tax on your total income (including gift) as per existing tax slab.

Source: http://law.incometaxindia.gov.in/DIT/Income-tax-acts.aspx