Tax on gifts up to Rs. 50,000 p.a are exempted in India. In addition, gifts from specific relatives like parents, wife/husband and siblings are also exempted from tax. Gifts in other cases are taxable. Tax on gifts in India comes under the guidelines of the Income Tax Act as there is no specific Gift tax after the Gift Tax Act, 1958 was changed in 1998.
Gifts that are exempt from tax
1) Gifts up to Rs. 50,000 in a financial year are exempted from tax. But if you receive gifts exceeding this amount, the entire Gift becomes taxable. For example, if you receive Rs75,000 as a gift from your friend, the entire amount of Rs. 75,000 would be added to your Income and taxed at your particular slab rate. It would be called as ‘Income from Other Sources.’ Here, the total value of all gifts received is counted. For example, if you receive Rs. 50,000 from one friend as a gift and Rs 25,000 from another friend, the limit of Rs 50,000 would be considered as breached. The entire gift value Rs 75,000 would be taxable under your hands.
2) If you receive any Property (movable or immovable) for inadequate consideration, the difference between the consideration and the Stamp duty value would considered as a taxable gift. For example, if you are given a flat worth of Rs 50 lakh (according to circle rates/ready reckoner rates for Stamp duty) and you pay only Rs 30 lakh, then the excess Rs 20 lakh would be considered as a taxable gift. Note that if the difference between actual value and Stamp duty value is less than Rs 50,000, the transfer will not be considered as a taxable gift.
3) Gifts from specified relatives are exempted, regardless of amount. These relatives are spouse, father, mother, brother and sisters. They also include any lineal ascendant or descendant of the individuals or his spouse as well as brother/sister of the spouse. However note that even though the gift itself is exempted in the hands of the recipient, the income generated from the gift may be taxable under the clubbing of Income provisions of the Income Tax Act. For example, if Mr Akash gifts Rs 10 lakh to his wife, the same would not be added to the income of his wife. However if his wife creates an FD from the same and earns interest, the interest would be added to the income of the husband.
4) Gifts given in contemplation of marriage of the recipient are exempted.
5) Gifts given in contemplation of the death of the donor and gifts given under a will or inheritance are also exempted.
6) Property received from any local authority as defined under section 10(20) of the Income-tax Act.
7) Property received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in Section 10(23C).
8) Property received from any trust or institution registered under Section 12AA.
Are gifts in cash and kind, both taxable?
Yes, all kinds of gifts including cash, gold, real estate, paintings or any other valuable item are taxable. However if the particular cash amount or value of the gift in kind is less than Rs 50,000 the same would not be taxable.
Tax was imposed 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 particular gifts in the hands of the recipient. So, as per the law amended in the year 2017, ‘‘gifts received by any person are taxed under the hands of recipient under the head ‘Income from other sources’ at Normal tax rates”.