The practice of presenting and receiving gifts is age-old. With the changing times, certain people have misused the concept of gifts to evade taxes. The law prohibits tax evasion. To track and tax unauthorised payments made in the form of gifts (cash and kind), the Income Tax (IT) Act has inserted few provisions under section 56 of the act.
Note: The Government had introduced ‘Gift Tax’ in April 1958 under the Gift Tax Act, 1958 with an objective to tax gifts (received or given under certain specific circumstances). However, the Gift Tax Act was abolished in 1998, and thus all gifts were made tax free. In 2004, the Government re-introduced the concept of taxing gifts under the Income Tax Act.
In this article, we will discuss the taxation of gifts under the Income Tax Act in brief:
As per the IT Act, Gift can be classified as follows:
- Any sum of money received without consideration (monetary gift).
- Specified movable properties received without consideration (gift of movable property).
- Specified movable properties received at a reduced price/inadequate consideration (movable property received for less than its fair market value).
- Immovable properties received without consideration (gift of immovable property)
- Immovable properties acquired at a reduced price/for inadequate consideration (immovable property received for less than its stamp duty value).
The provisions relating to the taxations of gifts are covered in section 56(2)(x) of the Income-tax Act, 1961. The summary of this section is:
|Type of Gift||Monetary threshold||Calculation|
|Monetary Gift||If the money received is more than INR 50,000||The entire amount is subject to Income Tax|
|Gift of Movable Property||If the Fair Market Value (FMV) of the property is more than INR 50,000||The FMV of the property is subject to Income Tax|
|Movable Property received for less than its fair market value||If the FMV of the property exceeds the consideration paid by INR 50,000||FMV (-) Consideration paid is subject to Income Tax|
|Gift of Immovable Property||If the Stamp Duty Value of the property is more than INR 50,000||The Stamp Duty Value of the property is subject to Income Tax|
|Immovable Property received for less than its stamp duty value||If the Stamp Duty Value of the property exceeds the consideration paid by INR 50,000||Stamp Duty Value (-) Consideration paid is subject to Income Tax|
The Income Tax Act has exempted certain types of gifts from taxation. The list of such gifts can be summarised as under:
|Any Individual (Relative*)||Any Individual (Relative*)||No Occasion required|
|Any Person (Non-Relative)||Individual (Non-Relative)||Marriage of Individual|
|Any Person||Any Person||Under a will or by way of inheritance|
|Any Individual||Any person||In contemplation of death of the payer|
|Local authority – Panchayat, Municipality, Municipal Committee and District Board, Cantonment Board||Any Person||No Occasion required|
|Fund/foundation/university or other educational institution/hospital or other medical institution/any trust or institution referred to Section 10(23C)||Any Person||No Occasion required|
|Any charitable or religious trust registered under section 12A or section 12AA||Any Person||No Occasion required|
|Any person||Any fund/trust/institution or any university or other educational institution/any hospital or other medical institution established for charitable/religious/educational/philanthropic purpose and approved by the prescribed authority as per section 10(23C) (iv) (v) (vi) and (via)]||No Occasion required|
|HUF||Members of HUF||Asset distribution during total/partial partition of HUF|
|Individual||Trust created or established solely for the benefit of relative of the Individual||No Occasion required|
*Under the Income Tax Act, Relative means:
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 descendent of the Individual;
f) Any lineal ascendant or descendent of the spouse of the Individual;
g) Spouse of the persons referred to in (B) to (F).
Note: The taxability of gifts is determined based on the aggregate value of the gifts received during the year and not based on Individual gifts.
The value of the gift is taxable in the hands of the receiver under the head ‘Income from Other Sources’. This amount will be taxed at the normal tax rates based on the income slabs applicable to the taxpayer.
Note: Winnings from game shows, puzzles, lotteries, etc., are taxed differently. Read our article on ‘Income Tax Payable On Winnings From Game Shows, Puzzles and Lottery’ here.
Non-Resident Indians are taxed in India only if they receive or accrue any income in India. As mentioned above, gifts are generally taxed in the hands of the receiver. However, for NRIs, when money in the form of gifts is remitted from India, they are not taxable in India as the gift transaction is complete only when the money is received by the non-resident in his/her foreign bank account located outside India.
Any gift received by the employee from his/her employer is taxable in the hands of the employee if the value of the gift is more than INR 5000.