The Parliament of India introduced the Gift Tax Act in 1958, and gift tax is essentially the tax charged on the receipt of gifts. The Income Tax Act states that gifts whose value exceeds Rs.50,000 are subject to gift tax in the hands of the recipient.
Gifting is one of the many ways to express love and affection. It is a custom to gift your closed ones during occasions especially in India. But did you know the gifts are taxable?
As per the Income tax act of 1961, if the value of the gift exceeds Rs.50,000 then the gift is taxed as income in the hands of the person who receives the gift.
What is Gift Tax?
Gift tax is a act introduced by the Parliament of India in 1958. It was introduced to impose tax on giving and receiving gifts under certain circumstances which is specified under the act. These gifts can be in any form including cash, jewellery, property, shares, vehicle, etc.
Gift Tax on Transfers
The gift tax is also applicable on certain transfers that is not considered as a gift. The transfer of existing movable or immovable property in money or money’s worth qualifies for gift tax.
Gift Tax Act
Tax was levied on gifts in the hands of the person who receives it by enacting the Gift Act, 1958. However, it was later abolished in the year 1988. And six years later it was re-introduced under section 56(2) (V) of the Income-tax Act, 1961, for taxing gifts in the hands of the recipient. So, as per the law amended in the year 2017, ‘‘gifts received by any person are taxed in the hands of recipient under the head ‘Income from other sources’ at normal tax rates”.
Following are the provisions of the Gift Tax Act.
| KIND OF GIFT COVERED | MONETARY THRESHOLD | QUANTUM TAXABLE |
|---|
| Any amount of money without consideration | Sum > 50,000 | Total amount of money received |
| Any immovable property such as land, building, etc. without consideration | Stamp duty value > Rs 50,000 | Stamp duty value of the property |
| Any immovable property for inadequate consideration | Stamp duty value exceeds consideration by > Rs 50,000 | Stamp duty value Minus the consideration
Example 1: Stamp duty value Rs 3,00,000 Consideration Rs 75,000. Taxable amount is Rs 2.25 lakhs (stamp duty value exceeds consideration by > Rs 50,000)
Example 2: In Example 1, if consideration is Rs 2,80,000, taxable gift amount is Nil as stamp duty value does not exceed consideration by > Rs 50,000 |
| Any property (jewelry, shares, drawings, etc.) other than immovable property without consideration | Fair market value * (FMV) > Rs 50,000 | FMV of such property |
| Any property other than immovable property for a consideration | FMV exceeds consideration by > Rs 50,000 | FMV Minus consideration (Same example in case of immovable property can be referred) |
Provisions relating to Stamp Duty
The provisions of the stamp duty value are very similar to the provision as per section 50C of the Income Tax Act. The provision of Gift Tax is mentioned in brief below:
Computing Stamp Duty
To compute gift tax stamp duty for immovable property, stamp duty needs to be considered. However, the stamp duty value can be higher for various reasons and one such reason can be the time gap between date of registration and agreement fixing the consideration. Hence, with regards to gift tax, stamp duty value as on the date of agreement fixing the consideration must be kept in mind if the following conditions are satisfied:
- Date of agreement and date of registration are different
- Consideration is either paid in part or can be fully paid by way of an account payee cheque, by using electronic mode of transfer through bank account or bank draft on or before the date of agreement for transfer.
Besides, the tax officer is required to evaluate all the records in case the taxpayer has questioned or disputed the stamp duty value adopted by valuation authority as per Section 50C of the Income Tax Act.
Gift Tax Exemptions
As rules laid by the Government there are certain gifts that do not attract tax as and when received by any person in the form of Gift.
Note: Donee Meaning – A person who receives a gift is known as donee.
| CATEGORY OF DONE (RECIPIENT OF GIFT) | CATEGORY OF DONOR | OCCASION COVERED |
|---|
| Individual A gift from relative is not taxable for a donee, but income from such gifts may be taxable in some cases For Instance: deemed owner concept in house property or clubbing provisions etc. | Relative Family members like your spouse, brother, sister of self and spouse, parents or parents in law or descendant of self or spouse are mentioned here | NA |
| Individual | Any person | Marriage of an Individual |
| Any person | Any person | Under a will or by way of inheritance |
| Any person | Individual | In contemplation of death of donor or payer |
| Any person | Local authority – Panchayat, Municipality, Municipal Committee and District Board, Cantonment Board | NA |
| Any person | Any fund, foundation or university and other educational institution. Or someone from medical institution or any trust or institution referred in Section 10(23C) | NA |
| Any person | Any religious or charitable trust under section 12A or section 12AA | NA |
| Any trust, university, fund, educational institution which is established for charitable/religious/educational /philanthropic purpose and approved by prescribed authority [Refer Section 10(23C) (iv) (v) (vi) and (via)] | Any person | NA |
| Members of HUF | HUF | Any distribution of capital assets on total or partial partition of a HUF |
| Trust created or established solely for the benefit of relative of the Individual | Individual | NA
|
Disclaimer:
There is excessive tax planning in India using gifts which apparently fall under the scrutiny of the tax department, especially if it’s in huge quantity. Therefore, it is important to maintain documents to establish the genuineness of gift received.
Taxes On Gift
For taxability on gifts you can read
here.
For more info visit TAXAJ
Posted by Ramesh Kumar Gupta