Gift – Tax Liability – Income Tax on Gift in India
Gift of money and other valuable properties was famous as a tool to convert black money into white money. Gift can be in cash or kind what matters is its worth. Income Tax on Gift upto Rs 50,000 in India is exempt. Any gift given above this value is fully taxable in the hands of recipient, except in some cases. Let’s understand the cases of taxation on Gift in India.
1. Tax on Gift of sum of money
If a person receives any sum of money (cash, cheque, draft etc) from any other person without consideration (i.e. in the form of gift), and if the aggregate value of such gift received during theprevious year exceeds Rs 50,000 then the sum total of all the gifts received would be taxable in the hands of recipient under the head income from other sources.
However, the limit of Rs 50,000 would apply to the aggregate value of all the gifts received during the year and not individually for each gift.
For Example, if BabaTax receives gift of Rs 30,000 from a friend X, then it is not taxable. However, if in the same year Friend Y also gifts Rs 40,000 to BabaTax, then the whole amount of Rs 70,000 (Rs 30,000 + Rs 40,000) will be taxable.
2. Tax on Gift of Immovable property
Case A- Gift of Immovable property without consideration (ie pure free gift)
If the immovable property is gifted and the stamp duty value of Immovable property exceeds Rs 50,000, such stamp duty value would be taxable in the hands of the recipient under the head income from other sources.
For Example, if Employer of Real estate company gifts house to each of his employees having Stamp Duty value Rs 50 lakh each. In this case, each house will be taxable in the hands of each employee.
Case B – Sale of Immovable property for inadequate consideration ( less than the actual price)
If the stamp duty value of Immovable property is more than its sale price and the following conditions are satisfied:-
- That stamp duty value exceeds its sale price by more than Rs. 50,000.
- Stamp duty value is greater than sale price by 5% of sale price.
If both the conditions are satisfied then the entire difference would be taxable in the hands of the recipient under the head of income from other sources.
Example, if Employer of Real estate company sales house to each of his employees at Rs 50,000 having Stamp duty value Rs 50 lakh each. In this case, each house will be taxable in the hands of each employee at Rs 49.5 lakh (Rs 50 Lakh – Rs 50 thousand).
Meaning of Stamp Duty Value:- Stamp Duty Value means the value adopted by any authority of the Central /State Government for the purpose of payment of stamp duty in respect of an Immovable property.
3. Gift of property other than Immovable property (specified movable property)
Specified movable property includes :-
- Shares and securities
- Archaeological collections
- Any work of art
Case A- gift of specified movable property without consideration (i.e. pure gift)
If the fair market value of such property exceeds Rs 50,000, then such fair market value would be fully taxable in the hands of the recipient under the head income from other sources.
Case B- Sale of specified movable property for inadequate consideration
If the difference between the fair market value of such property and its sale price exceeds Rs 50,000, then the entire difference would be taxable in the hands of the recipient under the head income from other sources.
Note: Limit of Rs 50,000 is considered as aggregate for all the gifts.
Exemption of Gift under Income Tax Act
- Gift received from any relative.
However note that although the gift is exempt in the hands of recipient, the income generated from the gift may be taxable under the clubbing provisions of the Income Tax Act, 1961.
For example, if Mr X gifts Rs 1 lakh to his son, it will be exempt in the hands of son and therefore not added to the income of his son. However, if his son invest the same and earns interest, the interest would be taxable in the hands of Mr X.
- Gifts received by an individual on the occasion of his marriage from relatives/ non relatives.
- Gifts received under a will or by way of inheritance.
- Property received from a institution or trust registered under section 12AA.
- Gift received in contemplation of the death of the donor or payer.
- Gift of property by way of transaction not regarded as transfer under certain clause of section 47.
- Property received from a local authority as defined under section 10(20)
- Property received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C).
Meaning of Relative as per Income Tax Act
In case of individual
- Spouse of the individual
- Brother or sister of the individual
- Brother or sister of the spouse 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 person specified above
In case of HUF
Gifts received by HUF from any of its members are not taxable in the hands of HUF because for a HUF, all its members are treated as relatives.
For any questions, you may reach us at Discussion Forum
The author of above article is Shruti Jain.
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