Due to its diverse culture, customs, and religion, India is a country of close-knit families with many reasons to rejoice. There are numerous instances when gifts are exchanged. In fact, giving gifts to one another is a sign of love and affection, as well as a sign of social position.
Gifts, on the other hand, are frequently used in tax planning and evasion. Tax planning within the confines of the law is permissible, but tax evasion is illegal.
Gift Taxation In India
Gifts received by any person or persons are taxed in the hands of the recipient under the category ‘Income from other sources’ at standard tax rates, according to the law as it exists now, which was revised in 2017. We've gone over what kind of presents are covered and how much tax is levied on them.
Let us look at some categories covered under the same.
Monetary gifts (monetary gifts may be received in cash, drafts or cheques)
In India, gifts of up to ₹50,000 per year are tax-free. Furthermore, presents from particular relatives such as parents, spouses, and siblings are tax-free. Gift taxes in India are governed by the Income Tax Act, as there is no separate gift tax since the Gift Tax Act of 1958 was abolished in 1998. However, if the gift exceeds the value of Rs. 50,000, it becomes taxable.
An immovable property without consideration
Aside from marriage, there is no other circumstance when a person receives a gift that is not taxed. As a result, the immovable property received without consideration on occasions such as birthdays, anniversaries, and so on will be taxed. If the stamp duty value of a property exceeds Rs. 50,000, the stamp duty value of such property becomes taxable.
Immovable property for inadequate consideration
Any immovable property for a consideration that is less than the stamp duty value of the property by an amount exceeding Rs. 50,000, the difference between the stamp duty value of such property and the aforesaid consideration shall be chargeable to tax under the head "Income from other sources".
Movable property without consideration (shares, jewellery, drawings etc)
The stamp duty value/fair market value of the property would be taxable if the property was received without any consideration being paid by the receiver of the gift (provided the stamp duty value exceeds Rs. 50,000). Such a discrepancy would be taxable at Rs.50,000.
Movable property with inadequate consideration (shares, jewellery, drawings etc)
If the recipient of the gift pays insufficient consideration and the difference between the part payment and the stamp duty value/fair market value is more than Rs. 50,000, the difference is taxed.
Let us talk about some exemptions!
Sum of money or any property received from a relative
If a gift is received from the spouse, brother and sister of self and spouse, brother or sister of parents or parents in law, any lineal descendant, or descendant of self or spouse, and spouse of any of the relatives, it is exempt from tax.
At the time of the marriage
Gifts received during a person's own wedding are completely free from the gift tax.
Under the will or by way of inheritance
Any sum received under a will, as an inheritance, or in contemplation of the payer's death is totally exempt.
Some more exemptions from tax on gifts are
- If a property is received in contemplation of the death of the donor, then it will be completely exempt from tax.
- Property received from local authorities also falls under this category.
- Any property obtained from a fund, foundation, university, or other educational institution, hospital or other medical institution, or any trust or institution referred to in section 10(23C) is likewise exempt from gift tax.
- A trust created or established only for the benefit of the individual’s relatives is exempt.
- Any charitable or religious trust that has been established under Section 12A or 12AA is also free from tax.
This act was introduced with an objective to impose a tax on receiving and giving gifts under certain specific circumstances. It is important to know the taxation involved with regards to gifts in India to avoid any further unplanned tax outflow. As a result, it’s critical to keep track of paperwork to verify the gift’s authenticity.