Gift Tax India
Did you know that a gift in cash or kind may trigger a tax liability for the recipient. Or, if you get moveable or immoveable property for less than its market value, it can be seen a gift given to you, and you may have to pay taxes on the balance amount.
Current law on gifts tax
Previously, cash gifts of up to Rs 50,000 were tax free. However, if the gift was more than Rs 50,000, then the entire amount was taxed.
Under the revised law, any gift received in cash or kind exceeding Rs 50,000 or purchase of movable or immovable property for inadequate payment is taxed in the hands of recipient as "income from other sources."
Are gifts to family and relatives tax free? Are there any exceptions?
The above rule does not apply to gifts in cash or kind received from relatives. Additionally, if you receive a gift on any of the following occasions, that gift will be tax free in your hands.
- On occasion of the marriage
- Under a will or by way of inheritance
- In contemplation of death of the payer
- Any local authority, trust or university
So if you are getting married, then any gift you receive on this occasion whether from a relative, friend or colleague, is not going to be taxable in your hands. Similarly, if you receive some moveable or immoveable property through an inheritance, it will also not be taxed in your hands.
Who is a relative?
A relative can be either spouse of the individual, or brother or sister of the individual, or spouse or of either parent, or lineal ascendants or descendants of individual or of spouse.
What all are considered moveable and immoveable property?
Assets like land or buildings, shares and securities, jewellery, archeological collection, drawings, paintings, sculptures or any works of art are specifically defined as moveable or immoveable property.
Are there any administrative activities to keep in mind regarding gifts?
While receiving a gift, it's always in the interest of the donee (i.e., the recipient) to get a gift deed signed by the donor. This can always help support the case that the item was indeed a gift and can be used as evidence in case of future litigation/investigation by the tax department.
Additionally, care should be taken when making a gift to a spouse or son's spouse, because gifts received by them will be exempt in their hands, but any income earned from the gift will be clubbed with your income.
How the law is applied?
Gift to wife. Gopi gifts his wife Radha a house worth Rs 25 lakh. This is a situation where this is a gift of an immoveable property between spouses. Because Radha is Gopi's wife, nothing is taxable. However, any income that is earned on the house, e.g., rental income in the case of the house being put on rent, will be clubbed with Gopi's income and taxable in his hands.
Gift to fiancé. Raju gives a gold necklace worth Rs 80,000 to his fiancé Rajni. This entire amount is taxable in her hands, as jewellery (moveable property) above Rs 50,000 is taxable in the hands of the recipient.
In this case Rajni is still not Raju's wife, but his fiancé, so the gift is taxable. If the two were married, then no incidence of tax would have arisen.
Gifts among friends. Raman and Narayan are friends. Raman gives Narayan a cash gift of Rs 25,000. Nothing is taxable as the gift does not exceed Rs 50,000. In the same tax year, Raman gifts Narayan another gift of Rs 25,001. Now the total value of gifts received by Narayan is Rs 50,001, and beyond the tax free limit. Now the entire amount will be taxed as income from other sources in Narayan's hands.
In the same tax year, Raman gifts Narayan a painting worth Rs 75,000 on the occasion of Narayan's wedding. However, in this case nothing is taxable as gifts received on the occasion of a wedding are tax free.
Purchases below market value
Ajay buys a plot of land from his friend Vijay. The stamp duty value (or market value) of this land is Rs 10 lakh, but Ajay gets it at a discounted price of Rs 6 lakh only. This is the case of the purchase of immoveable property for inadequate consideration/payment.
As the difference between the real value of the land and the purchase price is greater than Rs 50,000, Ajay will have to pay tax on Rs 4 lakh, because this amount is treated as being a gift for tax purposes.