Taxability of Gifts under Income Tax Act

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In India, Gifts are given on various occasions such as festivals like Diwali, Holi, or on the occasion of marriage to show affection towards our loved ones. But now the gifts are also used for tax planning purposes since in various specified cases, any amount of gifts received is exempt from tax. Many people don’t disclose the gifts received in their ITR believing that all the gifts received out of love and affection are. Read to know about the Taxability of Gifts under Income Tax Act 1961.

However, this isn’t the right approach as gifts are exempt from tax only in some specified situations or if received from some specific people. The non-disclosure of gifts may attract the penalty which ranges from 50% to 200% of tax payable on income sought to be evaded. Taxability of gifts can be divided into following two categories:

1. Gifts received from employer

There are instances when employers provide a gift to the employee on ceremonial occasion or to boost their morale or when they perform excellently. An employee is liable to be assessed for gifts received from the employer only if the value of such gift is Rs. 5,000 or more. Gifts below Rs. 5,000 in aggregate during the financial year are exempt from tax. These gifts are taxable as perquisites under the head Income from Salary.

2. Gifts received from any other person

Section 56(2)(x) of the Income Tax Act, 1961 deals with the taxability of the gifts received by the person during the year except an employer. This provision is applicable notwithstanding the residential status or class of assessee. The donor or donee can be an individual, partnership firm, LLP, company, AOP, BOI, co-operative society or artificial juridical person, whether resident or non-resident.

However, earlier the gifts by a resident person to a non-resident are claimed to be non-taxable in India as the recipient used to claim that income does not accrue or arise in India. So, to ensure that the receipt of gifts is taxed in the hands of the non-residents as well, Section 9 has been amended by The Finance (No. 2) Act, 2019 to provide that the income shall be deemed to accrue or arise in India if it arises due to payment of money (in excess of Rs. 50,000), without adequate consideration, by a resident person to a non-resident. It does not mention anything about the taxability of gift of property as referred to in Section 56(2)(x), inter-alia, immovable property, gold, securities, etc.

So, after the amendment it can be concluded that gifts in form of money in the hands of the non-residents given by the resident persons, will be taxed in their hands however gifts in any other form are still outside the perview of taxability under the Income Tax Act.

Taxability of gifts can be bifurcated in following criteria’s: –

2.1. Gifts received in form of money

Where any person receives any sum of money, without consideration and the aggregate value of such sum exceeds Rs. 50,000, then the whole of the aggregate value of such sum shall be chargeable to tax under the head income from other sources. The aggregate amount of receipt during the year from various sources and persons has to be considered for ascertaining the threshold limit.

2.2. Gifts received in form of immovable property

Immovable property received by the assessee during the year either without consideration or for inadequate consideration shall be regarded as deemed income in his hands and taxable in such year, if the receipt falls in any of the following cases:

  • Where an immovable property is received without consideration and the stamp duty value of the property exceeds Rs. 50,000, then the stamp duty value of such property will be chargeable to tax.
  • Where an immovable property is received for a consideration which is less than the stamp duty value, the difference between stamp duty value and consideration is chargeable to tax if such difference is more than the following two limits:
  • Rs. 50,000; and
  • 10% of the consideration[1].

In both the situations, the limit of Rs. 50,000 shall be checked for every transaction and not in aggregate of all transactions.

[1] Amended by Finance Act, 2020

In both the situations, the limit of Rs. 50,000 shall be checked for every transaction and not in aggregate of all transactions.

2.3. Gifts received in form of movable property

Movable property as defined under the Act means any property in the nature of Shares and securities, Jewellery, archaeological collections, drawings, paintings, sculptures, any work of art, or bullion. Where the transaction involves any other movable property such as Cars, furniture; excess of consideration over the fair market value shall not be chargeable to tax. Deemed income in this case can be ascertained as follows:

·    Where any property is received without consideration and the aggregate fair market value of which exceeds Rs. 50,000, the whole of aggregate fair market value of such property will be chargeable to tax.

·    Where any property is received for a consideration which is less than the aggregate fair market value of the property by an amount exceeding Rs. 50,000, the difference between fair market value and consideration is chargeable to tax. 

In both the situations, the limit of Rs. 50,000 shall be checked for every transaction and not in aggregate of all transactions.

3. Exempt Gifts

Scenarios where Gifts would be exemptParticulars
On happening of a specified event·     On the occasion of the marriage of the individual
·     Under a will or by way of inheritance
·     In contemplation of death of the payer or donor.
Due to the status of Donor·     Gift is received from any specified relative;
·     Gift received from any local authority;
·     Gift received from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in section 10(23C);
·     Gift received from any trust or institution registered under section 12A/12AA/12AB;
·   Gift received from an individual by a trust created or established solely for the benefit of relative of the individual.
Due to the status of the Donee·    Gifts are received by any trust or institution registered under section 12A/12AA/12AB;
·     by any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in Section 10(23C)(iv)/(v)/(vi)/(via).
Due to transactions not regarded as transfer·    Any distribution of capital assets on total or partial partition of a HUF[Section 47(i)]
·    Transfer of a capital asset by an Indian holding company to its wholly owned subsidiary company provided the conditions specified in Section 47(iv)/(v) are satisfied
·    Transfer of a capital asset in a scheme of amalgamation, demerger or business reorganization provided the conditions specified in Section 47(vi) to Section 47(vii) are satisfied
Other notified class of persons      Immovable property received by resident of unauthorized colony in the NCT of Delhi subject to the condition that such transaction must be regularized by the Central Government on the basis of the latest power of attorney, agreement to sale, will, etc.
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