Taxes on Gifts in India

• Taxation
• ||
• February 8, 2020

Indian culture is a blend of various religions and there are numerous events and celebrations when people express their love and affection by way of exchanging gifts with each other. There is a misleading contention that there are no taxes on gifts in India.

Gifts can be defined as any sum of money, movable or immovable property, which has been received by any person either without consideration or by way of inadequate consideration.

In order to curb the evasion of tax flow, the Gift Tax Act was enacted by Parliament of India in the year 1958 from the 1^st day of April which was then repealed on 1^st October 1998. However, the same was partially renewed in 2004 by the insertion of a new provision in the Income-tax Act, 1961 under Section 56(2) of the Act.

The recipient of the gift is known as Donee and the person making the gift is known as Donor. Though Gifts are taxable in the hands of Donee, there are certain exceptions/exemptions from the provisions of taxes on Gifts, which are discussed as below:

1. Gifts received by an Individual from any person on the occasion of the marriage of such individual or at any time from any of his family members covered in the definition of relative u/s 2(41) of the Income Tax Act, 1961. It is to be noted that gifts received on occasions other than marriage like birthday, anniversary, etc. are not subject to this exemption;

2. Gifts received by any person from:
   • any other person under will or inheritance
   • any Individual in contemplation of death of donor or payer
   • any local authority or any fund or foundation or educational institution or any religious/ charitable trust and vice-versa;

3. Gifts received from any member of HUF from HUF on any distribution of capital assets on a total or partial partition of HUF ;

4. Gifts received by an individual from any person of value not more than INR.50,000/-, other than exemptions covered in points 1 to 3 above;

5. Gifts received from a person or an individual by a trust created or established for the advantage of relative of such individual.

Hence, any gift received in the form of cash or kind like immovable property, jewelry, shares or for any inadequate consideration of the value more than INR.50, 000/- shall be fully taxable in the hands of the recipient.

For example, if an individual receives gifts worth INR.75, 000/- in a year, either from one or more than one person, then he is required to pay taxes on the entire amount received by him. However, if the amount of such gifts is less than or up to INR.50, 000/-, he will be fully exempted from payment of taxes on the same.

Gifts received by way of inadequate consideration
In case of immovable property, the recipient shall be liable to pay taxes in case the difference of consideration and stamp duty value exceeds INR.50,000/- and the stamp duty value is more than 105% of consideration amount.

The stamp duty value as on date of agreement shall be taken into consideration for the purpose of computation of gift tax, if below two conditions are satisfied:

• The registration data and agreement fixing the consideration are different.
• The consideration is either paid in part or in full by way of electronic mode, transfer from a bank account, bank draft or account payee check on or before the date when an agreement for transfer has been made.

At AJSH & Co, we do assist our clients in dealing with various tax matters by providing them adequate support and guidance from our end. To know more about our services and offerings, you can write to us info@ajsh.in or click here.