Gift tax in India is supervised by the Gift Tax Act, which comes into force on 1st April 1958. This Tax Act extends to all parts of India except the State of Jammu & Kashmir. Gift Tax is the tax on property or money that one living person gives to another. Most of the gifts received are not subject to taxation because of exemptions are provided in Indian Income tax laws.
Gift Tax Act, 1958
As per the Gift Tax Act 1958, gift (in the form of cash, draft, check or others) is an excess of Rs. 25,000/- received from one who doesn’t have any blood relations with the donee, were taxable. However, from 1st October 1998, Gift tax got demolished and all the gifts made on or after that date were Tax-free. But in 2004, the Gift Tax Act was again renewed partially, and a new provision was inaugurated in the Income Tax Act 1961 under Section 56 (2). According to Gift Tax Act, 1961 the gifts received by any individual or HUF more than Rs.50,000/- in a year would be taxable. For More information regarding Gift Tax rate and the Gift Tax India rules, refer the following sections.
Gift Tax Act, 1961
As per Gift Tax Act, 1961 gifts can be given in the form of Cash, movable property such as such as jewellery, painting, work on art and immovable property such as buildings or land.
Taxability of Gift in India
- If you get any of them from a relative(refer the Relative list below), is not taxable.
- If you receive monetary gift whose aggregate value is equal to or less than of Rs. 50,000/-, then no tax is levied on the donee (either Individual, HUF).
- By section 56(2), any gift worth more than Rs 50,000/- received without consideration by an individual/HUF the whole amount is taxable. The entire amount is added to ‘income from other sources‘ of the donee, and it is taxed according to his Income tax slab.
Gift Tax Exemptions – Tax Free Gifts
Let us take a look at some of Gift Tax in India exemptions.
Up to a sum amount of Rs.50,000/- is not Taxable
The primary rule which every individual should know is that there is no tax to be paid on gifts (in the form of Cash, cheque) received if the total amount of the gift is up to Rs 50,000/- in a year. But if the full amount of the gift received above Rs. 50,000/- then you(donee) will have to pay the tax on the total amount (not additional) received.
Mr Goo Jun Pyo (a friend of you) gifts you Rs. 35,000/- (in the form of Money or any Article) in a given year, then you(donee) don’t have to pay any tax on that amount. Hence, it’s below the limit of Rs 50,000/-. Now suppose you also get a gift from Mr Kim Bum worth of Rs. 15,000/- after that, still you(donee) don’t have to pay the tax on the total value of the gift you got in the year was Rs. 50,000/- till now (less than the limit of Rs 50,000). But now, if Mr Song Joong Ki gifts you another Rs 20,000/-. Then your total gifts in a year are Rs 70,000/-, so you(donee) will have to pay tax on the full amount of Rs 70,000/-, not just on additional Rs 20,000/-. This Rs 70,000 will be included in your(donee) income, and you(donee) will have to pay tax on this Rs 70,000/- as per your tax slab.
Gifts received by relatives in not taxable
Another rule of Gift Tax exemption is that any gift (amount) obtained from relatives is entirely tax-free in the hands of the donee. So if a relative gives you (donee) gift (in the form of cash/cheque or consideration), then you will not have to pay any tax on the amount received.
List of relations which are considered as “relatives” as per Gift Tax Act
- Brother/Sister of the individual.
- Spouse of the Brother or Sister.
- Parents of Brother or sister.
- Lineal ascendant or Lineal Descendent of the individual.
- Spouse of the Lineal ascendant or Lineal descendant.
- Spouse of the individuals referred to in (ii) to (vi.)
Mr Lee Min Ho wants to buy a house and his father/mother/sister/brother etc. transfer Rs. 20 lacs to his bank account. In such case, Mr Lee Min Ho need not to pay any tax, because it’s a gift from his relatives.
As per Gift Tax Act, there is no need to pay income tax on the money received from relatives. But in some cases, Income Clubbing provisions may apply. For example, if husband gifts Rs. 10,00,000/- to his wife, there is no tax to be paid by wife on receiving Rs. 10,00,000/-. But when she invests that money and in case any interest is generated from that investment then it will be clubbed with husband income.
Clubbing of Income
Gift received from the spouse (in the form of cash, cheque) is exempted as per Gift Tax Act as the spouse under the definition of “Relative“. In some special cases, income from such a gift is clubbed with the individual income, and it is taxed accordingly.
Gifts received on the occasion of marriage
Wedding gifts received at the time of marriage of the individual is not taxable, either from relative or non-relative. So even if you(donee) get Rs 5 crore as the wedding gift from someone in your wedding, it’s not taxable in your hands.
Gift Tax on Movable or Immovable properties
Movable Property includes
- Archaeological collection.
- Work of art.
Gifting of Immovable properties
- Immovable property is gifted without any consideration then if the stamp duty value is more than Rs. 50000/-, such a stamp duty shall be considered as income in hands of the donee.
- The property is carried for consideration, and the actual price (value) of the property exceeds Rs.50,000/- the difference is treated as the income in hands of the donee.
Gifting of Movable properties
- If a property is gifted without consideration and FMV( Fair Market Value) is greater than Rs. 50,000/-, then the FMV will be taken as the final value.
- If a property gifted for a consideration and the FMV (Fair Market Value ) less consideration is greater than Rs.50,000/-, then the FMV less consideration amount will be taken as the value of the gift.
Gift received through WILL or Inheritance
When Lum sum of money or any property is gifted under a will or by the way of inheritance, is exempt from Gift Tax. As per the Gift Tax Act, monetary gift received under will/ by way of inheritance is entirely tax-free in hands of the donee.
Some of the Gift Tax Exemptions
- Gift received in contemplation of death of the donor.
- As per Income Tax Act Section 10(20), Gift received from a local authority.
- Gift ( in the form of money) received from any fund/foundation/university or other educational institution/ hospital /medical institution, trust or organization referred to in Income Tax Act Section 10(23C).
- Monetary gift received from a trust or institution which is registered under Income Tax Section 12AA.