Gift Tax in India

Wondering how and when you need to pay a gift tax?

Whether there is a festival or celebration, gifts are integral to social life. And while gifts exchanged between individuals, organisations or institutions can be varied, if the invested amount on that gift exceeds a certain threshold, a gift tax is levied on the recipient.

In this article, let’s get to know what a gift tax is, its limits, exemptions and the type of gifts covered under the Gift Tax Act. 

What is Gift Tax?

The gift tax was implemented in April 1958 by the Governme J nt of India. It was introduced under the Gift Tax Act, 1958 (GTA) to levy taxes on the exchange of gifts worth over Rs. 50,000. In simpler words, the gift tax is a type of tax that is imposed on receiving and giving of gifts under specific events.

Although the GTA was revoked in October 1998, making all gift exchanges tax-free, it came into force again in 2004 with new amendments and income tax provisions in place. 

Gift Tax in India

As amended in 2017, the Indian law entails that any gifts received by an individual or more are to be taxed at the liability of the recipient. It is exercised under ‘Income from other sources’ with regular tax rates. We have discussed the gifts covered and their quantum to be taxed below.

What Type of Gifts Are Covered Under the Gift Tax?

Here is the classification of taxable gifts under the Income Tax Act.

1. Any amount of money received without consideration. It can also be understood as a ‘monetary gift’.
2. Specified movable properties received without consideration. It can also be understood as a ‘gift of movable property’.
3.  Specified movable properties received at a price lower than the fair market value.
4. Immovable properties received without consideration. It can be understood as a ‘gift of immovable property’.
5. Immovable properties acquired at a lower price. It can also be understood as ‘immovable property that has been received for less than the stamp duty value’.

Gift Tax Rules

As per the current Income Tax rules, the gift tax is counted as a direct tax. The donee (the one who receives the gift) is responsible for declaring and making the required tax payment. The donee has to declare the value of the gift while filing Income Tax Returns which will be mentioned under the “Income from Other Sources” head. Let’s learn more about gift tax norms, provisions and exemptions.

Tax on Gifts in India FY 2022 -23

Provisions for Gift Taxes in India

You must note that the provisions related to the consideration of the stamp duty value resonate with those specified under Section 50C.

Now let’s discuss all the provisions for tax on gifts below:

• The stamp duty value has to be considered for computing gift tax in the case of immovable property. However, you must be mindful that a varied range of factors can cause stamp duty to be higher. One such factor is the long time gap between the agreement that solidifies the consideration and the date the registration has been done. This applies when the following terms are met:
  • The date of this agreement, as well as the date of registration, are not the same.
  • Consideration has been paid, wholly or in part, through a cheque or bank draft/electronic transfer via bank account before or on the date of agreement for the transfer.
• If a taxpayer raises a doubt or question or launches a dispute before the stamp duty value that has been considered by the stamp duty valuation authority under Section 50C, the tax officer will be required to refer this valuation to VO, the valuation officer. A valuation officer takes note of records as well as provides an opportunity to the taxpayer for being heard. They then pass a written order of the value he has concluded. In the case of gift tax, value arrived by VO or a lower stamp duty value needs to be adopted.

Gift Tax Exemptions

In India, gifts worth up to Rs 50,000 per annum are exempted from tax. Gifts received from relatives like spouses, parents and siblings also come under gift tax exemptions. The ones that do not meet this criterion are taxed. Taxation on gifts is administered under the Income Tax Act.

Listed below are all the exemptions that come under gift tax in India:

• Gifts up to Rs 50,000 during a financial year are tax-exempted. In case you have received gifts higher than the set amount, the gift received will be taxed. Suppose you are treated to a gift worth Rs. 80,000 from a friend. In this case, the whole amount of Rs 80,000 would add to your income and fall under the taxation category at the slab rate. This gift would be titled ‘Income from Other Sources.’ An important note to make here is that all gifts received are counted while computing the total amount of tax on gifts. If you receive Rs 60,000 from a friend in the form of a gift and Rs 20,000 from the other one, the limit of Rs 80,000 would be deemed as breached. The value of the entire gift (Rs. 80,000) would be taxed in your hands.
• When you receive any movable or immovable property for inadequate consideration, the difference amount between the stamp duty value and the consideration would be considered a taxable gift. Let’s understand it with an example: Suppose you have been gifted an apartment worth Rs 70 lakh, as per the circle rates or ready reckoner rates applicable for stamp duty, and you only pay Rs 40 lakh, the excess of Rs 30 lakh would be treated as a taxable gift.

Note: If the difference between the stamp duty value and the actual value is less than Rs 50,000, the transfer will not be deemed a taxable gift.

• Gifts received from specified relatives (father, mother, spouse, brother and sister) are exempted irrespective of the amount. They also comprise any ascendant/descendant of the individual, brother or sister of the spouse or the individual’s spouse. However, the income generated from the gift may be taxed as per the combination of different income provisions related to the Income Tax Act, even if the gift itself is to be exempted in the hands of the recipient. For instance, if an individual gifts Rs 15 lakh to their spouse, the same is not to be added to the income of the spouse. But if their spouse starts an FD from the same and gets interest on that, the interest would add to the individual’s income.
• Gifts given under inheritance or a will and gifts that are given at the death of the donor are exempt.
• Gifts that are given in the marriage of the recipient.
• Property received from a local authority as mentioned under Section 10(20) of the Income Tax Act.
• Property received from any foundation, fund, university, hospital or other medical or educational institution or any trust referred to in Section 10(23C).
• Property received from an institution or trust registered with Section 12AA​.

How to Save Gift Tax

If you consider the following aspects of tax on gifts in India, you will find the best way to save tax on gifting. Take a look.

• If the gift recipient and giver are anyone other than relatives, the maximum tax-free amount is Rs. 50,000. If the amount of gift exceeds that, the whole amount will be deemed taxable as per the tax slab of the recipient.
• Gifts given to or received from any relatives (be it your parents or spouse, your or your spouse’s brothers and sisters, siblings of your parents and your or your spouse’s lineal descendants) are entirely tax-free.

Final Word

Whatever tax it may be, it is easy to be tempted to net it within tax evasion. Know that tax planning is permissible as long as it is being executed per the framework suggested by law. But tax evasion is punishable, and it can bill you hefty penalties and lots of trouble. It is advisable that you understand taxation on gifts in India and don’t fall prey to committing any offence.

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