Income Tax on Gifts - All You Need to Know

The gifts received by an individual can be taxed under the Income Tax Act of 1961 . The Finance Act 2004 brought in Section 56(2)(v) which governs the tax provisions for gifts . The Section lays down detailed guidelines regarding the types of taxable gifts, the value of gifts that can be taxed and exceptions to the rule.The previous act, the Gift Tax Act, 1958 , taxed the donor, but this legislation was scrapped in 1998. The present law under the Income Tax Act taxes the recipient of the gifts.

1. Gift of Money Gift of money refers to the cash gifts that one receives without consideration during a financial year (FY).
   If a person receives a gift of money exceeding Rs 50,000 in a tax year, then tax will be levied on the entire amount.
2. Gift of Immovable Property This deed refers to immovable properties like a building or a plot.In case of property gifted without consideration, then the recipient has to pay tax if the Stamp Duty exceeds Rs. 50,000.In case of inadequate consideration, the tax has to be paid if the stamp value exceeds the consideration amount by more than Rs 50,000. Example – If the Stamp Duty is Rs. 2,00,000 and the consideration value Rs. 50,000, then the tax to be paid is 200000 – 50000 = Rs 1,50,000.However, if the consideration is Rs. 1,75,000, then the difference between Stamp Duty and consideration is less than Rs 50,000, and the tax to be paid is Zero.
3. Gift of Movable Property This includes gifts like paintings, jewelery, shares, etc.For movable property, the fair market value (FMV) will be considered for valuation. The recipient has to pay the tax if the FMV is above Rs 50,000, without consideration.In case of consideration, the same rules as immovable property apply here. This can be understood with the same example as above; however, instead of Stamp Duty, it will be FMV.

The recipient need not pay income tax if they received a gift of money or property under the following circumstances –

1. From a relative – The definition of a relative is brother, sister, spouse, brother or sister of any of the parent, sister or brother of the spouse, lineal descendant or ascendant, lineal descendant or ascendant of the spouse.
2. Marriage of recipient
3. By inheritance or will
4. Death of payer or donor
5. From local government or state institutions
6. From charitable or religious trusts under Section 12A and 12AA
7. From any institution or trust under Section 10(23C)

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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.