Gift-giving is deeply ingrained in Indian culture, serving as a means of expressing affection, gratitude, and goodwill. From festive celebrations to special occasions, exchanging gifts is a common practice that fosters strong social bonds.
However, beyond the joy and significance of gift-giving lies a realm of tax implications that both donors and recipients need to navigate in India. The Indian tax system has established specific provisions and regulations to govern the taxation of gifts, and understanding these laws is crucial to ensure compliance and avoid any potential legal issues.
Let us discuss it in detail.
From the recipient’s perspective
Under the Income Tax Act, gifts received by individuals or Hindu Undivided Families (HUFs) are subject to taxation if they exceed certain specified limits. The taxability of gifts is determined based on the nature of the recipient, the value of the gift, and the relationship between the donor and the recipient.
Speaking on the same, Dr. Suresh Surana, Founder, RSM India said, “Section 56(2)(x) of the IT Act provides for tax implications for gifts (including monetary and certain specified non-monetary gifts) in the hands of done (i.e. recipient of such gifts) and provides specific exemption in case of receipt by Individuals from close relatives.
Gift tax exemption for individuals and HUFs:
a) Gifts received from relatives: Any gift received from specified relatives, including parents, siblings, spouse, or lineal descendants, is entirely exempt from taxation. This exemption extends to gifts received on the occasion of marriage or under a will or inheritance.
b) Gifts received on specified occasions: Gifts received by individuals or HUFs on occasions such as marriage, through a will, or inheritance are tax-free, irrespective of the value of the gift.
“In accordance with the said section, any cash gift or property (movable or immovable) received by any individual without consideration or for inadequate consideration would be subjected to tax provided the following conditions are fulfilled,” Dr. Surana added.
Transaction | Monetary Threshold | Taxable amount |
Cash gifts | Aggregate value exceeds Rs. 50,000 | Entire amount received |
Specified Movable property (jewellery, shares and securities, archaeological collections, drawings, paintings, sculptures, any work of art, bullion etc.) received without consideration | Aggregate fair market value exceeds ₹50,000 | Fair market value (FMV) of such property |
Specified Movable property received for inadequate consideration | Aggregate fair market value exceeds consideration by ₹50,000 | Difference of FMV and consideration |
Immovable property received without consideration (land, building, etc.) | Stamp duty exceeds Rs. 50,000 | Stamp duty |
Immovable property received for inadequate consideration | Difference between stamp duty value (SDV) and consideration is higher of the following (a) Rs. 50,000 and (b) SDV is more than 110% of actual consideration | Difference between Stamp duty and consideration |
Note: The above inputs have been provided by Dr. Suresh Surana, Founder, RSM India
Taxation of gifts for non-individuals:
Gifts received by non-individuals, such as companies, trusts, or partnerships, are subject to taxation without any specific exemptions. Such gifts are treated as income and taxed at the applicable income tax rate for the respective entity.
From the donor’s perspective
As a donor, it is crucial to be aware of the recipient's relationship, the value and nature of the gift, and the applicable exemptions to ensure compliance with the income tax regulations.
“From the donor’s perspective, any monetary gifts (cash / cheque), jewellery, property, shares, etc would be exempt in the hands of the donor. Under section 47 of the Income-tax Act (“IT Act”), any such gifts would not be treated as “transfer” for the purpose of computing capital gains in the hands of the donor,” Dr. Surana added.
Proper documentation of the gift and maintaining records can help both the donor and the recipient in the event of any tax-related inquiries. By understanding the rules and regulations surrounding gift taxation, donors can ensure that their gestures of goodwill are in compliance with the law while minimizing any tax liabilities for the recipient.
