In India, gifts are regulated by the Income Tax Act, and their taxability depends on the nature of the gift, the relationship between the giver and receiver, and the gift’s value. Gifts may include cash, property, jewelry, or other valuable assets, and the tax treatment varies based on whether the gift is received from a relative or non-relative. This guide covers what is considered a gift under income tax law, the applicable exemptions, and the tax implications for different types of gifts.

1. What is Considered a Gift Under Income Tax?

Under Section 56(2)(x) of the Income Tax Act, the following items are considered gifts:

• Cash or Money: Any amount received in cash, check, bank transfer, or any other form.
• Movable Property: Includes items like jewelry, vehicles, shares, securities, and artworks.
• Immovable Property: Land, buildings, or any real estate property.
• Gift Vouchers or Cards: Treated as cash equivalents.

Note: Gifts are taxable only if their value exceeds specified thresholds, and they are received from non-relatives. Gifts from specified relatives are generally tax-exempt.

2. Taxability of Gifts in India

Gift transactions are categorized as taxable or non-taxable based on the relationship between the donor (giver) and donee (receiver) and the nature and value of the gift. Here’s an overview:

2.1 Tax-Exempt Gifts

Gifts received from certain specified relatives or on specific occasions are exempt from income tax.

Exempted Relationships and Occasions:

• Specified Relatives:
  • Spouse
  • Siblings of self or spouse
  • Siblings of parents (maternal or paternal uncles and aunts)
  • Lineal ascendants or descendants (parents, grandparents, children, grandchildren)
  • Lineal ascendants or descendants of spouse
• Occasions:
  • Marriage: Gifts received on the occasion of marriage are tax-exempt, regardless of the relationship with the giver.
  • Inheritance: Gifts received as inheritance or through a will are tax-exempt.
  • In Contemplation of Death: Gifts given by a donor expecting imminent death are tax-exempt.
  • Local Authorities, Approved Charities, and Funds: Gifts received from certain institutions like local authorities, specified funds, or charitable trusts are tax-exempt.

2.2 Taxable Gifts from Non-Relatives

Gifts from non-relatives or exceeding specified limits are taxable under “Income from Other Sources.”

• Cash Gifts: If the aggregate value of cash gifts from non-relatives exceeds ₹50,000 in a financial year, the entire amount is taxable.
• Movable Property: If the fair market value (FMV) of movable property received as a gift exceeds ₹50,000 in a financial year, it is taxable.
• Immovable Property:
  • If property is received as a gift without consideration (i.e., without payment) and its stamp duty value exceeds ₹50,000, it is taxable.
  • If property is purchased at a price significantly lower than its stamp duty value (the difference exceeds ₹50,000), the difference is taxable as a gift.

3. Tax Treatment of Different Types of Gifts

Here’s a detailed look at how different types of gifts are taxed:

3.1 Cash or Money Gifts

• Threshold: Cash or money received as a gift exceeding ₹50,000 from non-relatives in a financial year is fully taxable.
• Taxable Amount: If the total cash gifts exceed ₹50,000, the entire amount is taxed under “Income from Other Sources.”

Example: If Mr. A receives ₹70,000 from a friend (non-relative), the entire ₹70,000 will be taxable as income. If he receives ₹30,000 from one friend and ₹25,000 from another friend, the total of ₹55,000 will be taxed.

3.2 Movable Property Gifts (e.g., Jewelry, Shares)

• Threshold: The FMV of the movable property received as a gift must exceed ₹50,000 to be taxable.
• Taxable Amount: If the combined FMV exceeds ₹50,000, the entire value is taxable under “Income from Other Sources.”

Example: If Ms. B receives jewelry worth ₹60,000 from a non-relative, the entire ₹60,000 will be taxable.

3.3 Immovable Property (Land, Buildings)

• Without Consideration: If the stamp duty value exceeds ₹50,000, the entire stamp duty value is taxable.
• Under Consideration (Purchased Below Market Rate): If the purchase price is less than the stamp duty value by over ₹50,000, the difference between the stamp duty value and purchase price is taxable.

Example: If Mr. C buys a property worth ₹1,00,000 for ₹40,000 from a friend, the difference of ₹60,000 will be taxable as income.

4. Tax Deductions and Exemptions on Gift Income

Though gifts are typically added under “Income from Other Sources,” there are some deductions and exemptions:

• No Deduction for Gifts Received: Gifts added to income under “Income from Other Sources” are not eligible for any deductions under Sections 80C to 80U.
• Exemptions for Agricultural Land: If agricultural land is received as a gift, it is tax-exempt if located in a rural area.

5. Reporting Gift Income in Income Tax Return (ITR)

Gift income should be disclosed under the “Income from Other Sources” section in the ITR if it exceeds the specified thresholds. Here’s how to report it:

1. ITR Form Selection: Use ITR-1 or ITR-2 based on the total income.
2. Provide Details of Donors and Amounts: Mention the details of gift transactions, including the type of gift and relationship with the donor.
3. Document Retention: Keep records of gift deeds, agreements, or receipts for verification, especially for large or high-value gifts.

6. Special Considerations for Gifting Transactions

6.1 Gifts to Family Members as Tax Planning

Gifting to family members, particularly to non-earning family members like spouses or minor children, does not reduce tax liability for the giver. Income Clubbing provisions apply:

• Clubbing of Income: Income generated from gifts given to a spouse or minor child will be clubbed with the giver’s income.
• Exception for Major Children: Gifts to major children are not subject to clubbing. Income generated from these gifts is taxed in the child’s hands.

6.2 Gifts as a Form of Tax-Free Investment

Transferring assets, particularly property or investments, to close family members can reduce future tax burdens on growth income, provided they are major dependents.

6.3 Documentation for High-Value Gifts

For significant gifts, especially real estate, consider formal gift deeds. Proper documentation ensures clarity during tax assessments or audits and helps avoid disputes over ownership or taxation.

7. Penalties for Non-Disclosure of Gift Income

Non-disclosure of taxable gifts may result in penalties and interest:

• Penalties for Underreporting: A penalty of 50% of the tax due on underreported income may apply.
• Interest on Unpaid Tax: Interest under Sections 234B and 234C may apply if tax on gift income is not paid.

Examples of Tax Implications on Gift Transactions

1. Example 1: Gift from Non-Relative Exceeding ₹50,000
   • Mr. Sharma receives ₹1 lakh from a friend. Since it exceeds ₹50,000, the entire amount is taxable under “Income from Other Sources.”
2. Example 2: Property Gift from Relative
   • Ms. Kapoor receives a property from her brother. Since it is from a specified relative, it is entirely tax-exempt, irrespective of the value.
3. Example 3: Cash Gift at Marriage
   • Mr. Singh receives ₹2 lakh as wedding gifts from family friends and relatives. Gifts received on the occasion of marriage are tax-exempt, so no tax applies.

Conclusion

Gifts received in India may or may not be taxable depending on their nature, the relationship with the donor, and their value. Gifts from specified relatives and on particular occasions are generally tax-exempt, while gifts from non-relatives exceeding certain limits are taxable. Proper documentation, awareness of thresholds, and understanding of exemptions can help manage and plan for tax implications on gifts. For large or complex gift transactions, consulting a tax professional can provide guidance on compliance and reporting requirements.

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