Gifts are an integral part of our social culture and are often given as a token of love, gratitude, and appreciation. However, gift tax in India is applicable on certain gifts, while some gifts are free from taxation. The Income Tax Department of India imposes taxes on certain gifts received by individuals at a set gift tax rate.
Under Section 56 of the Income Tax Act, the tax on gifts received by an individual is calculated as income under 'Income from Other Sources.' Any gift received in excess of ₹50,000 in a financial year is taxable.
Example: If an individual receives a gift of ₹60,000, the entire amount will be taxable. Moreover, the total value of all gifts received will be considered.
Another provision is when an individual receives movable or immovable property for an unreasonable consideration, the difference between the consideration and the value of the stamp duty will be considered as a taxable gift.
Example: If an individual receives an apartment worth ₹50 Lakhs but has paid only ₹30 Lakhs, the excess ₹20 Lakhs will be considered a taxable gift. However, if the difference between the actual value and stamp duty value is less than ₹50,000, it will be considered a tax-free gift.
Under the Income Tax Act, gifts received by an individual are taxed as income under 'Income from Other Sources.' Any gift received in excess of ₹50,000 in a financial year is taxable.
For instance, if an individual receives a gift of ₹60,000, the entire amount will be taxable. Moreover, the total value of all gifts received will be considered. For example, if an individual receives gifts of ₹40,000 and ₹25,000 from two different friends, the total value of gifts received will be ₹65,000 and the entire amount will be taxable.
When an individual receives movable or immovable property for an unreasonable consideration, the difference between the consideration and the value of the stamp duty will be considered as a taxable gift.
For example, if an individual receives an apartment worth ₹50 Lakhs but has paid only ₹30 Lakhs, the excess ₹20 Lakhs will be considered a taxable gift. However, if the difference between the actual value and stamp duty value is less than ₹50,000, it will be considered a tax-free gift.
A simple way to calculate your liabilities is to use the gift tax calculator. India-based tax companies and online service providers have such provisions on their websites. Some of these tools are free, and can help you understand your tax outgo accurately.
Under the purview of the Income Tax Act, there are certain gift tax exemptions to keep in mind. Here is an overview of the key facts about gift tax exemption.
Condition |
Tax Implications |
Gifts received from relatives |
These gifts are exempt from tax under the Income Tax Act. For this purpose, the term 'relative' includes spouse, siblings, siblings of spouse, parents, grandparents, grandchildren, and spouse of any of the above. |
Gifts received on occasions such as marriage |
These gifts are exempt from tax. This exemption applies to gifts received from any person, irrespective of the value of the gift. |
Gifts received under a will or in contemplation of death |
These gifts are exempt from tax. This exemption applies to gifts received from any person, irrespective of the value of the gift. |
Gifts received from charitable trusts |
These gifts are exempt from tax. However, this exemption applies only to gifts received by an individual from a charitable trust that has been approved by the Income Tax Department. |
Gifts received from employers |
These gifts are exempt from tax subject to certain conditions. The value of the gift should not exceed ₹5,000 per annum, and the gift should not be in the form of cash or cash equivalent. |
Here are a few ways to try:
Plan gifts with care: One way to enjoy an exemption is to plan gifting with care. For instance, if you plan to give a gift to a family member or friend, you could divide the gift into smaller amounts so that the total value does not exceed ₹50,000 in a financial year.
Utilise exclusions available: As discussed above, several exclusions are available to individuals under the Income Tax Act. It is advisable to utilise these exclusions to the maximum extent possible.
Keep records: It is important to maintain records of all gifts received during a financial year. This will help in determining the tax liability, if any, at the time of filing the income tax return.
Gifts to charitable trusts: Donations made to a charitable trust are exempt from tax under Section 80G of the Income Tax Act.
You can use a gift tax calculator to calculate your liabilities. India-based tax companies and online service providers have such provisions on their websites.
By understanding the exclusions and provisions of the Income Tax Act, you can plan your gift-giving strategies while also saving on taxes. It is always advisable to consult a tax professional for a complete understanding of the provisions. This is the easiest way to ensure compliance with the law.
FAQs About Tax on Gifts in India
Are cash gifts taxable?
Yes, gift tax is applicable on cash gifts. But any cash gifts offered in kind and below up to ₹50,000 are not subject to taxation.
Are cash gifts considered as income?
Yes, if you have received monetary gifts, they are added to your income and you are liable to pay tax on it.
Are gifts to family members tax free?
No. Only up to ₹50,000 sent as a gift to family members is tax-free. Amounts exceeding this value will be taxed accordingly.
Can I receive a gift from a friend without paying tax?
As friends are not considered as a ‘relative’ as per the tax code, you are liable to pay tax on any gifts received from friends.
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