Taxation of Gifts

Everyone loves to receive gifts from their near and dear ones. However, income tax act has some key points to mention for people about to receive gifts. There are certain gifts on which tax is applicable and some gifts on which no tax is applicable. Gifts can be in any form i.e. either in monetary or non-monetary form. Initially there was a separate Gift tax applicable on gifts however it was later abolished, and receipt of gifts is now included in the head of Income from other sources.

Let’s understand how these provisions will help taxpayers in planning or deciding the taxability of the gifts they are about to receive. 

Taxability of Gifts:
The provisions relating to taxation of gifts are provided in Section 56(2)(x) of Income Tax  Act,1961. After the repelling of gift tax in India, the gifts received, either in monetary or in non-monetary form are considered for taxation in the income head of “Income from other sources”. Let us understand, what Section 56(2)(x) specifies:

It will be considered as income if,

After 1^st April, 2017, if any person receives in any financial year,

• any sum of money without consideration for an amount exceeding Rs.50,000, whole of such sum
• any immovable property 

1. without consideration for stamp duty amount exceeding Rs.50,000, then such stamp duty amount or
2. for a consideration, where stamp duty value is more than consideration, taxable value shall be higher of a) 50,000 Rs. b) 10% of consideration.

• Other than immovable property

1. Without consideration, if FMV exceeds Rs.50,000 then whole such FMV
2. For a consideration, difference of FMV and such consideration if such FMV is higher than consideration

Gifts Exempt from Tax:
The above-mentioned provisions will not apply to gifts where any sum of money or any property received—

1. From a relative:

The Income Tax Act, of 1961, defines “Relative” in Section 2(41) as the husband, wife, brother or sister, or any lineal ascendant or descendant of the individual.

2. Upon Marriage:
3. Under Will or inheritance
4. In contemplation of death of donor or payer
5. From Local authority – Panchayat, Municipality, Municipal Committee and District Board, Cantonment Board
6. From any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to Section 10(23C)
7. From or by any trust or institution registered under section 12A or section 12AA or section 12AB:

This any income received by a person from such trusts or incomes received by such trusts as per provisions.

8. By Any fund or trust or institution or any university or other educational institution or any hospital or other medical institution established for charitable/religious/educational /philanthropic purpose and approved by the prescribed authority.
9. By members of HUF from HUF
10. By any person from anyone in relation to expenses of COVID-19 treatment.
11. By member of a family member of a deceased person(in case of death due to COVID-19 illness and payment received within 12 months from death) where i) received by employer of such deceased person or ii) from any other person till 10Lakhs Rs.

Conclusion:
Generally, people plan to shift their inheritance wealth under a will or testament so that the same will not fall into the ambit of taxation. Gifts, if planned well in advance and keeping in mind certain provisions can turn into a good tax saving option as like gifts upon marriage or received by relatives does not fall within the taxable income provisions.

About Author:
CA Chinmay Shirish Agate
Chinmay Agate is a Practicing Chartered Accountant having 4+ years of experience and expertise in the field of Direct Taxation and Auditing compliances. In the past, he worked in various CA firms and comes with wide industry experience from services, retail to manufacturing to trading where he has handled various complex assignments. He has keen interest in Forex and Derivative knowledge as well as fundamental analysis.