Gift Tax India: Exclusions, Provisions & How to Save Tax From Gifts?

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 Act of India imposes taxes on certain gifts received by individuals at a set gift tax rate.

The taxation rules and regulations related to gifts can be complex, and it is essential to understand them to avoid any legal and financial complications. Read on to know the provisions under the Income Tax Act, the gift tax exemptions available, and how to save taxes on gifts.

The Income Tax Act of India defines a gift as any sum of money, movable property, or any other property that an individual receives without consideration or inadequate consideration. Gifts are considered as income for the recipient and are taxed accordingly. 

 

The value of the gift is determined based on its fair market value at the time of receipt. Any gift received from an employer or as a result of a business or profession is also considered a gift under the Income Tax Act.

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. 

• Gifts received from relatives: Gifts received from relatives are exempt from tax under the Income Tax Act. For this purpose, the term 'relative' includes spouses, siblings, siblings of spouses, parents, grandparents, grandchildren, and spouses of any of the above. 

 

Therefore, any gift received from any of these relatives will not be taxable, irrespective of the value of the gift.

• Gifts received on occasions such as marriage: Gifts received on the occasion of marriage are also 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: Gifts received under a will or in contemplation of death are also exempt from tax. This exemption applies to gifts received from any person, irrespective of the value of the gift.
• Gifts received from charitable trusts: Gifts received from charitable trusts are also 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: Gifts received from employers 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.

To save on taxes while gifting, certain strategies can be employed:

• Plan gifts with care: One way to enjoy gift tax returns is to plan them 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: One of the most tax-efficient ways of giving gifts is to donate to a charitable trust. Donations made to a charitable trust are exempt from tax under Section 80G of the Income Tax Act.

 

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 or refer to the Income Tax Act for a complete understanding of the provisions and ensure compliance with the law. 

 

With proper planning and knowledge, you can continue to enjoy the practice of gift-giving without any undue tax burdens.