Last updated: October 23rd, 2024 12:56 PM

Gift Tax in India: Applicability, Exemptions and Rules 

Gift tax in India is applied when the value of the received gift exceeds ?50,000 in the financial year. Gifts from non-relatives valued over ?50,000 are taxable in India. The tax rate depends on your income tax slab (5%-30%). However, gifts from close relatives like parents, spouses, or siblings are tax-exempt. When calculating income tax on gifts received, the taxable value must be reported under "Income from Other Sources" while filing the ITR. As the Gift Tax Act 1958 was removed in 1998, the Gift Tax in India is included and regulated under the Income Tax Act.  This article will delve deeper into the taxes on gift under the Income Tax Act, its applicability, exemptions and how the taxable value is determined. Simplify your ITR filing process with IndiaFilings, ensuring accurate reporting of your income and gifts received for compliance!! File Now!

What is a ‘Gift’ under Income Tax Act?

A “Gift” under Income Tax Act refers to any money, immovable property, or movable property received by an individual from another person or organisation without any payment in return. This means the recipient doesn't have to give anything in return to acquire the gift. From a taxation perspective, income tax gifts can be categorised into three main types:

1. Monetary Gifts: Monetary gifts encompass any money received, including cash, checks, drafts, and bank transfers. Therefore, receiving money in any of these forms could be considered a gift for tax purposes.
2. Movable Property Gifts: These include tangible items that can be moved, such as shares, bonds, jewellery, sculptures, paintings, and other valuable possessions. Additionally, the difference is generally considered a gift if a movable property is received at a price lower than its fair market value. For example, if you receive a valuable painting as a gift but the price is significantly less than its market value, the difference between the market value and the price paid would be treated as a gift.
3. Immovable Property Gifts: Immovable property, such as land, buildings, and residential or commercial properties, is also considered a gift if received at a price lower than its stamp duty value. This means that the difference between the fair market value and the price paid is treated as a gift.

Gift Tax Exemptions in India

As mentioned, Income tax on gifts received is applicable when the total value of gifts exceeds ?50,000 in a financial year. But, certain exemptions are available under income tax on gifts received, especially for gifts from close relatives or under special circumstances like weddings or inheritances. Below, we have given a detailed overview of those gift tax exemptions,

• Gifts Under ?50,000: Gifts received up to ?50,000 during a financial year are exempt from tax. This means that no tax is applicable if the total value of gifts received is below this threshold.
• Property Received for Inadequate Consideration: If property is received for a price higher than its fair market value, the difference between the stamp duty value and the consideration paid is treated as a gift. This excess amount becomes taxable. However, it is exempt if the difference is less than ?50,000.
• Gifts from Relatives: As per the Income Tax Act, Gifts received from the following relatives are generally exempt from taxes on gifts. 
  • Spouse of the individual.
  • Brother or sister of the individual.
  • Brother or sister of the spouse of the individual.
  • Brother or sister of either of the parents of the individual.
  • Any lineal ascendant or descendant of the individual.
  • Any lineal ascendant or descendant of the spouse of the individual.
  • Spouse of the persons referred to in (2) to (6).

However, any income generated from these gifts might be taxable under clubbing provisions of Income tax gifts. For example, if a gift is invested and earns interest, the interest income may be taxable.

• Wedding Gifts: Gifts received by a newly married couple from their immediate family members on the occasion of their marriage are comes under the gift tax exemption. This includes cash, jewellery, property, stocks, or gold.
• Gifts by Inheritance or Will: Gifts received through inheritance or a will are exempt from gift tax under the Income Tax Act.
• Gifts from Local Authorities and Charitable Trusts: Money received from local authorities, charitable trusts, funds, foundations, universities, or registered charitable organisations are generally exempt from tax. This also includes money received by meritorious students or patients under medical care.
• Money Received in Contemplation of Death: Similar to inheritance, money received in anticipation of a person's death is exempt from income tax gift.

How is the Taxable Value of Gifts Determined?

The Income Tax Act provides guidelines on how to calculate the taxable value of gifts, both monetary and non-monetary. Gifts are taxable if they exceed certain limits, and the taxes on gifts depend on the type and value of the gift received. The table below explains how the taxable value is determined for various types of gifts: 

Type of Gift	Gift Tax Applicability	Taxable Value of the Gift
Cash, Cheque, or Bank Transfer	If the total value of the gift exceeds ?50,000	The entire amount received as a gift is taxable
Immovable property (e.g., land or building) received without payment	If the Stamp Duty Value of the property exceeds ?50,000	The Stamp Duty Value of the property gifted is taxable
Immovable property bought at less than its Stamp Duty Value	If the difference between the Stamp Duty Value and the purchase price is more than ?50,000	The difference between the Stamp Duty Value and the price paid is taxable. Example: If the Stamp Duty Value is ?6 lakh and the purchase price is ?4 lakh, the taxable amount is ?2 lakh (6 lakh – 4 lakh).
Assets like jewellery, shares, paintings, and sculptures received without payment	If the Fair Market Value exceeds ?50,000	The Fair Market Value of the asset is considered the taxable amount
Assets like jewellery, shares, paintings, and sculptures purchased and then gifted	If the Fair Market Value exceeds the original purchase price by more than ?50,000	The taxable amount differs between the Fair Market Value and the original purchase price. Example: If a piece of jewellery has a Fair Market Value of ?3.5 lakh and was originally bought for ?2 lakh, the taxable amount is ?1.5 lakh (3.5 lakh – 2 lakh).

Following these guidelines allows for accurate calculation of the taxable value of income tax gifts, ensuring compliance with tax regulations.

How to Declare Gift Tax in India?

Gift tax is a form of direct tax levied on a gift recipient. In India, the recipient is responsible for declaring the value of the gift in their income tax return (ITR).

1. Determine Taxable Value: Calculate the taxable value of the gift. This typically involves subtracting any exemptions or deductions that may apply.
2. Include in ITR: Report the taxable value of the income tax gift under the "Income from Other Sources" category in your ITR.
3. Compute Tax Liability: The taxable value of the gift is added to your total income for the financial year. Use your income tax slab rate to calculate the tax liability.
4. Pay Tax: Pay the calculated gift tax amount along with your other income tax liabilities.

Learn more: How to File ITR in India?

Gift Tax Provisions Relating to Stamp Duty

The stamp duty value is crucial when calculating gift tax on immovable property. Similar to the provisions under Section 50C, the stamp duty value is considered for determining the taxable amount in the case of property gifts. However, this value can sometimes be higher due to various factors, such as delays between the agreement and registration dates. Below, we discuss key provisions related to stamp duty value for gift tax purposes:

• Stamp Duty Value on the Agreement Date: If there is a gap between the date of the agreement and the date of registration, the stamp duty value on the agreement date is used for calculating gift tax, provided the following conditions are met:
  1. The dates of agreement and registration are different.
  2. Part or full payment is made through an account payee cheque, bank draft, or electronic transfer on or before the agreement date.
• Disputed Stamp Duty Value: If a taxpayer disputes the stamp duty value used by the stamp duty authority, the tax officer must refer the case to a Valuation Officer (VO). The VO will review the records, offer the taxpayer an opportunity to present their case, and then issue a written order stating the value. The lower value determined by the VO can be considered for gift tax purposes.
• Relaxation under Section 56(2)(x): If the stamp duty value exceeds the consideration received for the gifted property, a relaxation of up to 10% of the consideration is allowed. This excess amount will not be considered income from other sources.

Conclusion

In conclusion, gift tax in India applies to gifts exceeding ?50,000, with several exemptions available for specific situations, such as gifts from relatives, wedding gifts, and inheritances. While gifts are taxed under the "Income from Other Sources" category in the Income Tax Act, the provisions provide guidelines on how to determine the taxable value for various forms of gifts, including monetary, movable, and immovable property. Exemptions, valuation methods, and considerations related to stamp duty help ensure the fair assessment of taxes on gifts, thereby simplifying the tax process for recipients. Get expert assistance from IndiaFilings for smooth ITR filing, and ensure compliance with gift tax regulations!! File Now!