How are gifts taxed?In April 1958, the Government of India introduced the Gift Tax Act with the aim of imposing tax on giving gifts. The GTA followed a ‘donor based’ taxation in which above the exemption of Rs. 30,000, the gifts were taxed in the hands of the donor at the rate of 30%. However, this act was abolished in October 1998, which made all gifts free of tax.
Later, in 2004, Gift Tax was reintroduced under Section 56 of the Income Tax Act, 1961 and it came into effect from 1 April 2005 under Finance Act, 2004. This time, the gift tax shifted to ‘donee based’ taxation and gifts received above Rs. 50,000 became taxable in the hands of the recipient under the head “Income from other sources”.
Taxability of gifts under the Income Tax ActAccording to the present Gift Tax law, a person receiving a gift in the form of a sum of money or movable and immovable property is liable to be taxed on the value of the gift. Gifts in the form of cash, gift cheques, demand drafts etc. are covered under the act. Further, ‘property’ gifts can be in the form of land, house or apartment, jewellery, shares and securities, any work of art like paintings and sculptures etc.
However, there are exemptions on the taxability of gifts received by a donee. For instance, cash gifts received from donors other than relatives above Rs. 50,000 are taxable. Also, stamp duty above Rs. 50,000 on property gifts received are taxable.
Provisions relating to gift taxSection 56(2)(x) of the Income Tax Act, 1961 deals with the provisions of gift tax, which are explained briefly in the table below:
|Type of gift covered||Monetary threshold (in Rs.)||Quantum taxable|
|Any sum of money without consideration||Sum > 50,000||The entire sum of money received|
|Any immovable property 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|
|Any 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 Government of India re-introduced gift tax to curb tax avoidance with extensive tax planning using gifts. Thus, it is advisable to have proper documentation so that genuineness of the gift received can be established.
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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.
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