Gift tax in India like Income tax is a reality. Yes, when you exchange gifts between friends , family or even a casual exchange, all transaction have some tax implications. Read on to know more.
Who doesn’t like gifts? In cash or in Kind, gifts are always welcome, no? Sometimes we receive gifts on a particular occasion and sometimes we casually exchange money between friends and family members.
But what if I tell you that the gifts that you receive have some tax implications too? As in you might have to pay tax on the gift that you receive. Even your casual exchange of money has its consequences.
Just imagine that you collect Rs 1 lakh in the form of cash shagun on your child’s mundan ceremony, Rs 50000 worth of gifts on birthdays, on what account you will show this amount in your IT return. After all you have received some money.
Income tax laws require us to show the different sources of money so these can be taxed as per the provisions laid down. It is mandatory to report or document all the receipts and pay tax where ever applicable. Gifts are one of those sources.
Gift tax in India was initially introduced in 1958 but was abolished in 1998. It was reintroduced in 2004, under Income from other sources. Exchanging gifts can be a source of money laundering, so income tax officers while scrutinizing personal transactions do keep eye on the source of funds and taxability of gifting transactions. And thus it is equally important for you to understand the gift tax provisions and maintain necessary documents wherever required as the onus of proving the source is on you.
Gift Tax in India – Rules
Rules on Gift tax in India have been laid down under section 56(2)vi of Income tax act, which says that any gift/money received by Individual or HUF if exceeds Rs 50000 in a financial year will be added in gross total income and taxed under Income from Other sources. To calculate the value of the gift, following provisions apply:
- If gift is received in cash:
If in a single financial year, total receipts in the form of cash gifts exceed Rs 50000, then the total receipts will be taxed. In other words, if the receipts are less than Rs 50000 then you need not to worry as these will be tax-free, but if it exceeds Rs 50000 even by Rs 1000, then the total receipts will be added into the gross total income and taxed as per income tax slabs.
- If gift is in form of movable property:
Here also the figure of Rs 50000 will apply. If the gift is without consideration and the fair market value of the gift exceeds Rs 50000 then the aggregate value of the gift would be taxable. If the gift is with consideration, but for a lesser value than fair market value and the difference exceeds Rs 50000, the difference in the value of FMV and consideration will be taken as taxable gift value.
- If gift is in form of Immovable property:
If the property is gifted without consideration and the stamp duty paid exceeds Rs 50000, then the stamp duty will be taken as gift value.
If the property is gifted with consideration then the difference between stamp duty value and consideration or purchase price will be considered as gift value.
Isn’t this unfair to tax on gifts? After all, gifts are given and received out of love and affection so why pay tax on this? To answer this discontent, Income Tax Act has provided some exemptions in gift tax in India rules, which are as follows:
Gift tax Exemptions Relative list
There would be no gift tax in India if the transaction falls under the below-mentioned criteria:
- If the gift amount in a financial year is below Rs 50000 then no gift tax provisions will be applied and the complete amount will be tax free.
- Any amount received from specified blood relatives is not at all taxable. Here the term relatives is defined as below:
a) Spouse
b) Brother or Sister
c) Brother or Sister of Spouse
d) Brother or Sister of either of your parents
e) Any of lineal ascendants or descendants
f) Any lineal ascendant or descendant of Spouse
g) Spouse of the persons referred above
Below is the chart which explains the relations which can give tax free gifts.Click on the image to enlarge
*Do note that this chart is designed to the best of my understanding and before acting on anything or doing any transaction do consult some tax expert.
You can see that all of your close relatives have been listed in the exempted category. So whatever gifts (Cash or kind, money or property) you receive from your parents/siblings or others as stated above will be tax-free in your hand. Just document a proper gift deed to clarify the source of the gift to Income tax authorities if asked for.
- Gifts received on the occasion of the wedding from relatives or non-relatives are non-taxable. This provision if taken advantage of can help a lot in creating one more tax file in the family and support in family’s tax planning. Any amount of gifts received on this occasion is tax-free. ( Read: tax planning tips for newly married couple)
- Whatever is received as an inheritance or through a WILL is non-taxable in the hands of the receiver.
- Any amount given to HUF by its members is tax-free in the hands of HUF. Please note that this applies to only members, but if any outsider person gifts more than Rs 50000 to HUF in a single financial year then the complete amount will be taxable for HUF.
- Gift Tax in India provisions also apply to NRIs as far as transactions in India are concerned. But they also have to check out the provisions laid down in the country where their source of earning lies, as they will be gifting money out of the earnings from another country.
Gift Tax in India – Procedure of Gifting
Whenever you receive something as a gift, it is your responsibility to get the necessary documentation done and keep handy to show the source of funds to the Income tax officers if asked for.
In the case of movable properties or cash there’s no such requirement of formulating a gift deed and just handing over the property or cash to the donee will solve the purpose, but it’s better to have a gift deed ( can be on plain paper)which explains the nature of the transaction ( as out of love and affection), have the name of the donor and donee with their Pan numbers duly signed by both parties. This gift deed gains more importance if the transaction is done in cash and not by cheque.
In the case of Immovable property, the gift transaction will be complete only after proper registration of the gift deed and payment of the respective Stamp duty. A registered Gift deed is a mandatory requirement in the case of immovable properties.
Tax planning through Gifting
Gifting helps in tax planning too, as it helps in spreading family income into different heads and thus spreading of overall tax liability. But for proper tax planning, you have to have an understanding of Income tax clubbing provisions too.
( Read: Tax planning through spreading of income)
Gift tax in India – Conclusion
Giving and receiving gifts is a common practice. But we should be aware of the law of the land and understand the taxation behind such transactions. Though in most of the gift cases, it is exempt as mostly it happens within the family, still we tend to make some casual transactions too like give and take between friends, and cousins, which don’t fall in the category of relatives.
Knowledge of defined relatives as per Gift tax in India provisions and having justification of every inflow coming into your bank account is very important for you to save your skin if you fall into Income tax scrutiny. Documentation of the gift deed is also important.
Do you find article “Gift tax in India – Rules and exemption” useful? If you have any queries on Gift tax in India do ask in the comments section below
Thanks for this informative article.
W.r.t. point 4 above (Whatever received as inheritance or through WILL is non-taxable in the hands of receiver.), is amount received from the FD account of the deceased person also non-taxable in the hands of the nominee of that account?
Thanks for liking the article Vaibhav.
Yes, even the amount received from FD a/c will be non taxable. The interest accrued till the date of death will be included and shown in the deceased ITR so whatever is the value of FD as on that date will be received by nominee as tax free receipts.
But after that interest earned will be part of nominee’s income.
My father aged 84 years wants to give gift of rupees 5 lacs as gift to me through cheque.the rules are mentioning that gift of any amount beyond rupees 50,000 is taxable.
But no gift tax,if given as inheritance/through will/in anticipation of death. I don’t want my father to die. Now,how can avoid gift tax.what type of document should I take from him to avoid the burden of gift tax to me.
There would not be any gift tax applicable in this case. Any gift received from parents (or any close relative) will not be taxable. However, you just take one letter from your father that he has given this gift ( with all details) under love and affection, with both of you mentioning your pan card numbers.
So, is there a need to mention the amount received as gift (via multiple cheques) from parents in the ITR? If yes, which section?
No need to mention all this in your ITR. For your records, you may take a letter from your parents mentioning all the cheque numbers, and both of yours Pan number, stating that all this amount has been given as Gift under love and affection.
Excellent! Thanks. I was under impression that it may have to be reported as ‘Exempt Income’..?
My brother in law (my sisters husband) is transferring 1cr to me as gift. He has source. Will the amount be taxed. What are the documents I need to keep ready in case of enquiry from IT dept
Brother in law (Real brother of spouse)Is in the list of relatives to be considered for Tax free gifts. So whatever he gifts you will be tax free in your hands. However, since amount is Big, so it is wise to prepare a Gift deed properly notarized with the payments details on it.
I am JGK (female). My real sisters husband wants to gift me 1cr.
Please clarify if this gift is tax free.
Also want to see a sample of the gift deed
He may gift you. You both fall in the definition of Relatives and Gift received by you will not fall in taxable gift purview. and neither this transaction calls for any clubbing of Income if the money you receive invested by you somewhere.
But a Little caution here, since the quantum is high, so better to be clear on the purpose of gift and do prepare the gift deed properly notarised which should have mention of the purpose on it.
and it is advisable to keep your CA informed about this transaction
Excellently written.I read so many articles on this topic.But your article is extraordinary.
My name is Manasa.Im living in US with my husband.We want to gift some amount(around 2 lakhs)to my mother’s brother(india) on completion of his 60th birthday(shastipoorthi in telugu).
1)Is it taxable in the hands of recipient?2)Is he comes under ‘relatives’ list as per the rules?
Please clarify.
Thanks Manasa.
Yes you may gift to your Mother’s brother Rs 2 lakh. There would be no tax liability on him. he is a Relative as per IT rules.
Gift received by sister after marriage from his brother is taxable. Further, if she make FD then interest income is taxable in whose hands.
Gift received by sister from his brother is not taxable and the interest on the FD would be taxable in the hands of sister only.
Property gift received from nephew to uncle is taxable?
To the best of our knowledge, it would be treated as tax-free. But before taking any action, do consult some tax expert.
I am to recieve property worth 5.5 cr from my guardian. He is like a father to me but a Muslim and I a Hindu. Can he adopt me and will gift tax not be applied. Or he can adopt my son and make the him. Any other option.
As far as we know, since your guardian is Muslim, Muslim Law would be applicable for adoption rules. Yes, gift would remain tax-free if father gives it to son, even in case of Adaption. Consult a good lawyer for further details.