Everything You Need to Know About Gift Tax Exemption
25 Jan 2020
In India, the act of gifting has - for time immemorial - been embedded in the social culture and common setting. Be it an anniversary, religious occasion, festivity, a celebration of success, or a voluntary corporate transfer, the act of gifting is a norm that goes on to also determine one’s social status. This is why it becomes important for all taxpayers to realize that gifting may become eligible to be considered as a part of one’s tax planning.
Understanding taxation on gifts
The first time ever that a gift tax was introduced by the Government of India was in the year 1958 as the Gift Tax Act, 1958 (GTA). The tax was levied on the gift donor at the time under specific circumstances and the GTA was consequently revoked in 1998. In 2004, the Finance Act introduced section 56(2)(v) forming gift taxation rules, this time being levied on the recipient. Following an amendment in 2017, these gift tax rules hold true today. Gifts (eligible for taxation) are taxed under the field ‘income from other sources’ and accordingly added to your slab rate.
The applicability of taxation on gifts in India
The gift tax rate eligibility and gift tax exemption depend on a variety of factors like the amount, the type of gift donor, and the category a gift falls under.
Source: H&R Block
As a taxpayer, you are exempted from paying tax on gifts in the following scenario:
If the monetary value of gifts is up to INR 50,000 per year.
If the gift donor is parent, spouse or sibling.
If the recipient is contemplating marriage and hence being gifted.
If the gift pertains to a will or inheritance post demise of the donor.
If the property is gifted by a local authority (as per section 10(20) under the Income Tax Act).
If the property is gifted by a trust or an institution that is registered under section 12AA of the Income Tax Act.
If the property is gifted from any kind of educational institution, a medical institution, a fund or foundation as defined in section 10(23C) of the Income Tax Act.
However, it becomes mandatory for a taxpayer to pay taxes on gifts (all kinds of gifts, be it cash or kind) in the following circumstances:
If the monetary value of the gift exceeds INR 50,000 per annum.
If the gift given by a parent, spouse or sibling is utilized to generate income, the very income may become taxable if it falls under the rules of Income Tax Act.
If the value of the gift from an employer to an employee exceeds INR 5,000 per annum.
Immovable property like land or building will be taxed if the stamp duty value of this gifted property exceeds INR 50,000 with no adequate consideration. Otherwise, the difference exceeding INR 50,000 and 5% of the consideration between an inadequate consideration and stamp duty value will be taxed on the recipient’s end.
The aforementioned rule involving immovable property is applicable to movable property gifts (apart from cars and motorbikes) such as tangible art items, jewellery, shares, securities, et al. with the exception that the condition of 5% of consideration is not applicable here. Also, in place of stamp duty value, the Fair Market Value (FMV) of the movable gift item is considered in order to calculate tax eligibility.
The distinction between the above-mentioned scenarios is significant to understand whether gift tax is applicable to you as a taxpayer in India. Apart from the given information, it’s also very important to know that documents like a Cover Letter and Gift Deed must be stored by the recipient so that the proof of receipt of taxable gifts can be produced if the need arises.
Gifts are etched deep into the fabric of Indian society. It is thus, essential to understand the various implications associated with gift-giving. So, once you’ve thoroughly understood the tax implications of gift-giving, you can head to the Bajaj Finserv EMI Store to pick out the perfect gift for your loved one. On the Bajaj Finserv EMI Store, it’s now a hassle-free experience for you to go for the latest electronic gadgets, home appliances along with lifestyle products with zero down payments and at low cost EMI. What else? Your shopping experience becomes smooth in the presence of cashback offers by the dozen, same-day delivery on select products, and exciting deals and discounts! Find the perfect gift for your loved one in an easy manner on the Bajaj Finserv EMI Store.
Finserv MARKETS, a subsidiary of Bajaj Finserv, is a one-stop digital marketplace that has been created for consumers on the go. It offers 500+ financial and lifestyle products, all at one place. At Finserv MARKETS, we understand that every individual is different. And that’s why we have invested in creating a proposition – Offers You Value. A value proposition that ensures you get offers which are tailor-made for you. We also offer an amazing product range and unique set of online offers across Loans, Insurance, Investment, Payments and an exclusive EMI store. Be it in helping you achieve your financial life goals or offering you the latest gadgets, we strive to offer what you are looking for. From simple and fast loan application processes to seamless and hassle-free claim-settlements, from no-cost EMIs to 4 hours of product delivery, we work towards fulfilling all your personal and financial needs. What’s more! Now enjoy the same benefits in just one click with our Finserv MARKETS App.