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What is Gift Tax?
Giving gifts are a way of showing affection and appreciation. However, when the financial value of the gift is substantial, it attracts tax liabilities. There are certain parameters and limits set by the Government in case of gifts. If the gift exceeds those limits, it ceases to be just a gift and is seen as a taxable income.
How Are Gifts Taxed?
There are various reasons and occasions on which people exchange gift. Be it birthdays, weddings, baby shower or even graduation, gifts have become a crucial gesture to congratulate people. In some cases, gifts also act as a symbol of social status, though in some cases, gifts can be a part of tax planning.Tax planning done within the framework of law is allowed, whereas tax evasion can be penalised. Gift tax was introduced by the Indian government in April 1958 as Gift Tax Act (GTA) to impose taxes on giving and receiving gifts under particular circumstances.
Provisions Relating To Gift Tax
| Types of gift covered | Monetary threshold | Quantum taxable |
| Any sum of money without consideration | Sum > 50,000 | Entire sum of money received |
| Any immovable property such as land, building etc. without consideration | Stamp duty value* > Rs 50,000 | Stamp duty value of the property |
| Any immovable property for inadequate consideration | Stamp duty value* exceeds consideration by > Rs 50,000 | Stamp duty value Minus consideration Example 1:Stamp duty value Rs 2,00,000 Consideration Rs 75,000.Taxable amount is Rs 1.25 lakh (stamp duty value exceeds consideration by > Rs 50,000) Example 2 In Example 1, if consideration is Rs 1,60,000, then taxable gift is Nil as stamp duty value does not exceed consideration by > Rs 50,000 |
| Any property (jewellery, shares, drawings, etc.) other than immovable property without consideration | Fair market value *(FMV) > Rs 50,000 | FMV of such property |
| Any property other than immovable property for a consideration | FMV exceeds consideration by > Rs 50,000 | FMV Minus consideration (The same example in case of immovable property can be referred to) |
* Value adopted by stamp duty authority for the purpose of stamp
Exemptions From Gift Tax
| Category of donee(recipient of the gift) | Category of donor | Occasion covered |
| Individual (It may be relevant to note here that while gift from defined relative is not taxable for the donee, income from such gifts may, in some cases, be taxable in the hands of donor itself – Example clubbing provisions, deemed owner concept in house property, etc.) | Relative – spouse, brother and sister of self and spouse, brother or sister of parents or parents in law, any lineal ascendant or descendant of self or spouse, spouse of any of the relatives mentioned here. | NA |
| Individual | Any person | Marriage of Individual |
| Any person | Any person | Under a will or by way of inheritance |
| Any person | Individual | In contemplation of death of donor or payer |
| Any person | Local authority – Panchayat, Municipality, Municipal Committee and District Board, Cantonment Board | NA |
| Any person | 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) | NA |
| Any person | Any charitable or religious trust registered undersection 12A or section 12AA | NA |
| 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. [Refer Section 10(23C) (iv) (v) (vi) and (via)] | Any person | NA |
| Members of HUF | HUF | Any distribution of capital assets on the total or partial partition of a HUF |
| Trust created or established solely for the benefit of relative of the Individual | Individual | NA |
Points to remember for saving tax by gifting
- If the gift giver and receiver are not relatives, the maximum tax-free amount of transfer is Rs.50,000. If the gift amount exceeds that, then the whole amount, not just the excess, becomes taxable as per the tax slab of the receiver.
- However, gifts of any amount received from or given to any relatives - parents, spouse, your and your spouse’s brothers and sisters, brothers and sisters of your parents and your and your spouse’s lineal descendants are entirely tax-free.
- To understand how you can save on your income tax through gifts, you have to know another thing called ‘Clubbing’. There is a misconception that if you gift a certain amount to your spouse or minor child, then that amount is automatically exempt from taxation. This brings us to our next point.
Example of ‘Clubbing’
Suppose you have an annual income of Rs.10 lakhs. You gift Rs. 1 lakh from it to your wife, you cannot claim that your taxable income is Rs.9 lakhs. You have to pay taxes according to your tax slab on the entire Rs. 10 lakhs.Now, the Rs.1 lakh gift amount is not considered as your wife’s taxable income. However, if your wife invests that money in, say, a in the bank, then the interest received from that FD will be considered taxable income, not of your wife, but, of you. This phenomenon is called ‘Clubbing’ and is the same if the amount is gifted to your child, who is a minor.Movable or immovable, in case you receive any property as a gift for inadequate consideration then the difference between the consideration and stamp duty value is taken as a taxable income. For example, if you are gifted a flat worth ₹60 lakh and you have paid ₹30 lakh then the remaining ₹30 lakh is taken as taxable gift.Read also : Taxes on Capital Gains
The only way to save tax via gift
The way tax can be saved is by gifting to your parents or parents in law or child who is a major. When you gift the amount, your taxable income still remains the same though. But, the interest they earn from other products by investing this money becomes their independent income. So, assuming that their income is lower, you can rest in peace knowing that the money will not be taxed.Earlier, before long term capital gains (LTCG) tax was active, one could also invest gift money in Mutual fund or stocks for 1 year and take it out as tax-free income. However, now it is not possible as LTCG tax has been reinstated with effect from 1stApril 2018.
Are Gifts In Cash And Kind, Both Taxable?
Yes, all types of gifts like gold, cash, real estate, artifacts or any type of valuable items are taxable. If the cash amount or value of the gift in kind is less than Rs 50,000, then the same would not be taxable.Ready to make the most of your money? Start your tax planning journey now!
FAQS - FREQUENTLY ASKED QUESTIONS
How to avoid gift tax in India ?
There is no tax on gifts received from relatives in India because the gift tax has been exempt. However, gifts from non-relatives that exceed INR 50,000 are taxed.
Here are some strategies to avoid gift tax in India:
• Gifts from family members are exempt from taxes: Gifts from certain relatives, such as parents, siblings, spouses, grandparents, or children, are not taxed.
• Transfer funds to family members: Instead of giving gifts, you may transfer funds to your parents or siblings.
• Give a loan instead of a gift to family members: If you don't want to pay gift tax, you might want to think about lending money to your loved ones. loans given to family members are not taxable.
How to gift a large amount of money ?
Decide the amount you want to give. Select the gifting method and It's important to know the tax regulations in India because any gift that exceeds a INR 50000 can be subject to tax.There are a number of ways to give a significant sum of money, including cash, bank transfer, or cheque. Before selecting the ideal solution, think about each method's security and ease.
Keep a note of the money given, the recipient's name, the occasion, and the date of the gift.
Who pays the gift tax ?
If a gift is received from a non-relative, the recipient must report it as "Income from Other Sources" on their taxes.
No matter how much you get in gifts from family members including parents, grandparents, siblings etc, you are not required to pay taxes on them.
If you give someone money, they don't have to pay taxes on the amount you gave them, but if they invest that money and make money off it, they will have to pay taxes on that income.
Do we need to declare a gift as income ?
Depending on the type and value of the gift, you might be required to declare it as income in India. Gifts from certain relatives, such as parents, siblings, spouses etc are not taxable.
When a gift from a non-relative reaches INR 50,000, it is regarded as "Income from Other Sources," and you may need to report it as income when filing your tax returns.
The value of the property is regarded as income if the gift is in the form of immovable property, such as land or a building,
The value of any movable item, such as shares or jewellery, that you receive as a gift is regarded as income.
How is gift tax calculated ?
Gifts that total more than INR 50,000 are taxable. The following guidelines are used to determine the tax on gifts worth more than INR 50,000:
If the gift is from a non-relative, the recipient must report the entire amount as "Income from Other Sources" when receiving it.
No matter how much the gift is, it is tax-free if it comes from a family member like parents, siblings, a spouse, grandparents, or children.
The value of the gift, whether it takes the form of immovable property like a building or piece of land, is treated as income and is taxed.
The value of the present, whether it takes the form of moveable property like shares or jewellery, is treated as income and is taxed.
Are gifts from family taxable ?
Gifts from family members are not taxable in India as long as certain requirements are met. Gifts from certain relatives, such as parents, siblings, spouses, grandparents, or children, are exempt from taxation.
Gifts from non-relatives, however, are subject to taxation. Any gift from a non-relative that exceeds INR 50,000 in a fiscal year is regarded as "Income from Other Sources" and is subject to tax in that year.
Where to declare gift income in ITR ?
If you got a gift in India that was more than INR 50,000, you must report it as "Income from Other Sources" on your income tax return. (ITR).
Give specifics about the gift you received in the “Income from Other Sources” line, including the giver's name and address, your relationship to them, and the amount received.
Using your income tax slab rate and the applicable income tax rate, determine the tax due on the gift income.
To prove the gift received, include supporting documents such the gift deed, bank statements, or other documents.
How to save tax by gifting money to our parents ?
It's used in India to give money as gifts to parents, and doing so can help you pay less tax overall.
Giving money to parents is tax-free. Invest the gifted funds to generate tax-free income: Your parents can generate tax-free income by investing the gifted funds in tax-free securities like PPF, tax-free bonds etc.
Giving a property to parents: You can give your parents a property as a gift, and they can use it to generate rental income.
Giving money to parents for medical expenditures is also an option, your parents can claim a tax deduction for the money they spent on medical care.
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.
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