India has a diversified culture with close-knit families and a lot of celebrations with different customs. Moreover, exchanging gifts is a part of the tradition and is a symbol of affection and love.
Sometimes, people may also use gifts to evade or avoid tax or as a tax-planning tool. Although using gifts for tax planning within the regulatory guidelines is allowed, doing so to avoid or evade tax can lead to penalties. Read on to know more about this tax.
What is the gift tax?
The Gift Tax Act was introduced in 1958 by the Parliament of India to impose taxes on gifts received and given under circumstances as defined in the act. The gifts can be in cash or kinds like property, jewelry, vehicles, shares, and much more.
Gift tax in India
Initially, the receiver of the gift was liable to pay the tax under this act, which was abolished in 1988. It was reintroduced after six years under section 56 (2) (V) of the Income Tax Act, 1961 for taxing recipients of the gifts. These gifts are taxed under the heading ‘Income from other sources’ at the regular tax rates.
Gift tax provisions
The following are the provisions for gift tax in India.Gift type Limit Taxable amount Cash amount received without consideration More than INR 50,000 Entire amount received Immovable property like land and building without consideration Stamp duty value exceeding INR 50,000 Stamp duty payable on the property’s value Immovable property like land and building for insufficient consideration Stamp duty exceeds the consideration paid by more than INR 50,000 Stamp duty amount without consideration Any property other than immovable property like shares, jewelry, drawings without consideration Fair market value (FMV) is more than INR 50,000 The FMV of the property Any other property except immovable property for a consideration FMV is more than the consideration by at least INR 50,000 The balance FMV after deducting the consideration
Exemptions on tax on gifts
Gifts up to INR 50,000 in a financial year are exempt. Gift tax exemption is also available from gifts received from relatives, which include parents, siblings, lineal descendants, spouse, their siblings, and lineal descendants.
Other circumstances when a tax on gifts is not applicable are as follows:
- Wedding gifts
- Gifts received as an inheritance
- Merit-based rewards or cash received from educational institutions or local authorities
- Gifts received from charitable trusts or religious organizations under section 12A or section 12AA
Gift Tax Act
The act was introduced in the Parliament in 1958 to impose a tax on receiving and giving gifts under some circumstances specified under the Gift Tax Act. The gifts could be either in the form of cash or other items like jewelry, shares, property, vehicles, and much more.
Frequently Asked Questions (FAQs)
How are gifts taxed in India?
Any gifts whether cash or other items whose value exceeds INR 50,000 in a financial year are liable to gift tax.
Does an individual need to declare any gifts received as income?
Yes, all gifts that are received must be declared as the receiver is responsible for paying the tax.
Are gifts received by minors also taxable?
If both parents are earning taxable income, any gifts from relatives received will be clubbed with their income and taxed at the regular income tax rate.
Are gifts received from Non-Resident Indians (NRIs) taxable?
Any gift received from relatives who are NRIs is exempt from gift tax.
Does a person have to pay tax on gifts received on occasions other than a wedding?
Only gifts received at a wedding are exempt from tax. Anything received on other occasions like anniversaries, graduation, or birthdays is liable to tax as per the regulatory norms.
How can gift tax be avoided?
It is recommended that every individual understands the gift tax laws in India. To avoid taxes, it is advisable to ensure the value of the gifts received during the financial year does not exceed INR 50,000.
What gifts are exempted from tax?Gift recipient Donor Occasion Individual Parents, siblings, lineal descendant, spouse, their siblings and lineal descendants Not applicable (NA) Individual Any person Wedding Individual Any person Via will or inheritance Any person Individual Contemplating demise of payer or donor Any individual Local authorities like a municipal committee, cantonment board, panchayat, district board, or municipality NA Any individual Any fund, educational institution, trust, foundation, medical institution or hospital, university, or institution under section 10 (23C) NA Any individual Charitable or religious trust registered under section 12A or 12AA NA Any fund, educational institution, trust, foundation, medical institution or hospital, university, or institution under section 10 (23C) (iv) (v) (vi) and (via) Any individual NA Members of Hindu Undivided Family (HUF) HUF Distribution of capital assets or partial partition of the HUF Trust specifically created for the benefit of an individual’s relative Individual NA
Are cash as well as non-cash gifts taxable?
Yes, all types of gifts like cash, property, paintings, jewelry, gold, and other valuables are taxable if their value is more than INR 50,000.
Is the income earned from a gift taxable?
As per the Income Tax rules, any income earned from gifts is not exempt from taxes and the receivers must pay the tax as per their regular tax slab.
Are gifts from the employer liable for tax?
Sometimes employees receive gifts from employers on festivals like Diwali or as a performance bonus. If the value of such gifts exceeds INR 5,000 during the financial year, the employee is liable to pay tax under the heading ‘Income from salary’.
This is a companion discussion topic for the original entry at https://jupiter.money/resources/guide-to-gift-tax-in-india/