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Gifts can sometimes be used in tax planning or tax evasion. While tax planning within legal boundaries is allowed, tax evasion is illegal and punishable.
To regulate gifts, the government introduced the Gift Tax Act in 1958. This act imposed taxes on certain types of gifts, including cash, demand drafts, bank cheques, or anything of value, under specified conditions. The ACt was abolished in 1998, and gift taxation is now governed by the Income Tax Act.
In India, gift tax applies if the value of gifts received exceeds ₹50,000 in a financial year. Gifts from non-relatives over this limit are taxable based on your income tax slab (5%-30%).
However, gifts from close relatives like parents, spouses, or siblings are exempt from tax.
Taxable gifts must be reported under “Income from Other Sources” when filing your Income Tax Return (ITR).
‘Gift’ under the Income Tax Act
A “Gift” under the Income Tax Act is money, movable property, or immovable property received without payment. It is classified as:
- Monetary gifts: Cash, checks, drafts, or bank transfers.
- Movable property gifts: Items like jewellery, shares, or paintings; taxed if received below market value.
- Immovable property gifts: Land or buildings; taxed on the difference if received below stamp duty value.
Gift tax exemptions in India
- Gifts below ₹50,000: No tax is levied on gifts received up to ₹50,000 in a financial year.
- In case of property: If property is received below its market value, the difference is taxable unless it’s under ₹50,000.
- Gifts from relatives: Gifts from close relatives such as spouses, parents, siblings, and their spouses are not taxed. However, any income generated from these gifts, like interest, may be taxable.
- Wedding gifts: Gifts given to a newly married couple by immediate family members, such as cash, jewellery, or property, are not taxed.
- Inheritance or will: Gifts received through inheritance or a will are not subject to tax.
- Gifts from local authorities and charitable trusts: Exemptions apply for gifts from specific organisations, trusts, or institutions under section 10 of the Income-tax Act.
- Money received in contemplation of death: Like inheritance, money received in anticipation of someone’s death is not taxable.
How to declare gift tax in India?
- Calculate the taxable value: Work out the value of the gift you received, considering any exemptions that may apply.
- Report in ITR: Add the taxable value in the “Income from Other Sources” section of your ITR.
- Calculate tax: Add the gift’s taxable value to your total income and calculate tax using your income tax slab.
- Pay the tax: Pay the gift tax along with your regular income tax.
How is the taxable value of gifts determined?
The taxable value of gifts depends on the type of gift and its value.
For cash, cheques, or bank transfers, if the total value of gifts exceeds ₹50,000 in a year, the entire amount received is taxable.
For immovable property like land or buildings, if the property’s Stamp Duty Value is over ₹50,000, that value is taxable. If the property is bought at a lower price than its Stamp Duty Value, the difference becomes taxable if it exceeds ₹50,000. For example, if the property’s value is ₹6 lakh but bought for ₹4 lakh, the ₹2 lakh difference is taxable.
For movable property like jewellery, shares, paintings, or sculptures, if the value exceeds ₹50,000, the full value is taxable.
If the property was purchased and then gifted, the taxable amount is the difference between its market value and the price it was bought for, if the difference exceeds ₹50,000. For example, if jewellery is worth ₹3.5 lakh but was bought for ₹2 lakh, the taxable amount is ₹1.5 lakh.
Gift tax provisions relating to stamp duty
When gifting immovable property, the stamp duty value helps calculate the gift tax. Here’s what you need to know:
If there’s a delay between the agreement and registration, the stamp duty value on the agreement date will be used, as long as payment is made before the agreement date.
If you disagree with the stamp duty value, the tax officer may refer the case to a Valuation Officer (VO), who will set a new value for the property.
If the stamp duty value is higher than the price you paid for the property, you can get a relaxation under Section 56(2)(x) of up to 10 % of the price, and it won’t be taxed.
