Gifts generally bring with them a feeling of gratitude and reward, without any obligation on the recipient’s part. However, most of the people do not know that even gifts received can come under the tax radar.

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 Act

According 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 tax

Section 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.

Click here to visit our personalized online advisor that gives you the financial expertise you need.

DISCLAIMER

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.



Trending Articles

Article Links

How to Calculate Income Tax

Income Tax Benefit

What is Tax

Tax Saving Investment

Tax Saving Investments Under 80C

Latest Articles

abc-of-taxes
abc-of-taxes

Income Tax Slab for Senior Citizen: Rates and Exemptions

Read More
Posted on 24 March 2020
abc-of-taxes
abc-of-taxes

How to Get Tax Rebate in India?

Read More
Posted on 24 March 2020
abc-of-taxes
abc-of-taxes

Section 80D Of The Income Tax Act For Health Insurance

Read More
Posted on 24 March 2020

Featured Articles

image abc-of-personal-money
abc-of-personal-money

Are Millennials Any Different When It Comes To Planning Financials?

Read More
Posted on 05 February 2020

Relevant Articles

image abc-of-personal-money
abc-of-personal-money

Is Any Dream Too Big If It Is Born Out of Passion and Ambition?

Read More
Posted on 30 March 2020
image abc-of-personal-money
abc-of-personal-money

Free Access to some Amazing Content Online

Read More
Posted on 30 March 2020
image abc-of-personal-money
abc-of-personal-money

Free Access to Online Music

Read More
Posted on 30 March 2020