Individuals exchange gifts as a part of a celebration or during significant events. One gives gifts as a show of respect and empathy towards the other individual. However, gift exchanges also take place as a part of tax planning or tax evasion.
To prohibit evasion and encourage tax planning, the Government of India introduced several provisions and clauses in IT Act to regulate gift tax and oversee gift exchanges.
The taxation provision relating to gifts was amended in 2017. According to this amendment, tax liability falls on the person receiving gifts from the other person. Gifts come under the head “Income from other sources” in income tax returns. Gifts are taxable at normal rates as per the respective tax slab of an assessee.
Here is a list of items covered under gifts:
Gift tax is regulated as per Section 56(2)(x) of IT Act. The given table provides the details of gift taxation in India:
|Type of Gift||Monetary Threshold||Taxable Amount|
|Any sum of money received without consideration||Greater than Rs. 50,000||Entire amount received|
|Immovable property received, such as buildings and land, without consideration||Whenever the stamp duty amount is greater than Rs. 50,000||Stamp duty amount of the immovable property|
|Immovable property received for inadequate consideration||Whenever the stamp duty amount exceeds the consideration value by more than Rs. 50,000||(Stamp duty – consideration amount)For example, the duty value is Rs. 3,00,000 and consideration amount is Rs. 1,00,000. So, the taxable amount is Rs. 2,00,000. Another example: The stamp duty amount is Rs. 90,000 and consideration amount is Rs. 50,000. No tax is applicable since stamp duty does not exceed consideration by more than Rs. 50,0000|
|Movable assets like shares, jewellery, etc. received without consideration||The fair market value must be greater than Rs. 50,000||Fair market value of such assets|
|Assets apart from immovable ones received with consideration amount||Whenever the fair market value exceeds the consideration amount by more than Rs. 50,000||(FMV – consideration amount received)|
Here are some provisions relating to stamp duty value in case of gift tax as per IT Act:
In such cases, tax authorities can consider the stamp duty value as per the date on which parties finalised the agreement consideration if the following conditions are met:
The following exemptions are available with regard to gift tax in India:
Gift tax in India is applicable on certain receivables and exempt on some receivables. Assessees must carefully understand the guiding principles and utilise gifts as a part of their tax planning process.
Ans: In India, a gift in either cash or kind is subject to taxation. This includes gold, real estate, jewellery, etc. However, when one receives a gift in cash, they are exempt from taxation when the value of such gift is lower than Rs. 50,000.
Ans: Whenever a minor receives a gift, the value of such a gift is taxable only when both his/her parents are earning taxable income. In such a case, the gift amount is added to the income of the parent whose income is the highest.
Ans: NRIs can receive financial assets as gifts from their relatives in India. These include stocks and other securities, given that value of the gift does not exceed 5% of the company’s paid-up capital. Furthermore, note that the sectoral cap must be maintained, and NRIs should be eligible to own such securities.
Ans: Yes, any gift received from an NRI relative is exempt from tax irrespective of the mode of payment of such gifts. Even immovable properties gifted by NRIs are tax-exempt. Whenever a resident receives such a gift, both the giver and receiver can claim tax exemption.
Ans: Finance Minister of India, in her Budget speech, mentioned that any digital asset such as cryptocurrencies and non-fungible tokens gifted by an individual is also eligible for taxation in the hands of the recipient. This provision will come into effect from FY 2022-2023.
Before you go…