my offers

How about checking some pre-approved offers you might be eligible for?

my offers

How about checking some pre-approved offers you might be eligible for?

  • Mobile No.
  • Date of birth

You have a pre approved offer

  • Sum Assured
    Premium
    Persons Covered
  • Rate
    5%

Currently, we do not have a personalized offer for you but don’t be disheartened. Check out our oven fresh deals of the day here!

We have 02 personalised offers for you

Currently, we do not have a personalized offer for you but don’t be disheartened. Check out our oven fresh deals of the day here!

my offers
Gift Tax - Finserv MARKETS

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

25 Jan 2020
75 Views

Gift Tax

Gifts received can also be included in tax planning and at the same time, gives ways to individuals to evade tax liability. While tax planning is appreciated, tax-evading is prohibited and draws a penalty. To avoid such complications and make the most out of tax planning, you should be aware of gift tax India.

Calculate tax

Tax on gifts was introduced by the Indian government in April 1958. It is regulated by the Gift Tax Act that was introduced to impose taxation while exchanging gifts under said circumstances. The said gifts as per gift tax India represent cash, bank cheques, demand drafts and other valuables received as gifts. According to the amended law in 2017, income tax on gifts received by any person or persons is taxed at the hand of the receiver under ‘Income from Other Sources’ at regular tax rates. The gifts covered under this act are money given in cash/cheque, immovable property like land or building, movable property like shares, drawings, jewellery, etc.

Gift Tax Exemption List

  • Gifts received up to ₹50,000 are exempt from income tax. However, if the gift received is higher than this set amount, the entire gift will become taxable and no gift tax exclusion will be given on it. For example, if you received ₹60,000 as a gift from your friend, the whole amount of ₹60,000 will be added to your income under ‘Income from Other Sources’ and will be taxed at the regular slab rate. 

Another important aspect is that the total value of all gifts is taken into account. For example, if you have received ₹40,000 from one friend and ₹25,000 from another, the total value of gifts received becomes ₹65,000. It exceeds the set limit of ₹50,000. Therefore, the entire gift value becomes taxable at your hands.

  • If you receive property as a gift, be it movable or immovable 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 you received an apartment worth ₹50 lakh (as per the circle rates/ ready reckoner rates for stamp duty) and you have only paid ₹30 lakh, the excess ₹20 lakh would be considered as a taxable gift. However, you should note that if the difference between actual value and stamp duty value is less than ₹50,000, it will be under tax-free gift limit 2021.

  • Gifts received from specific relatives are also under the gift tax exclusion list. This income tax exemption is given regardless of the amount received. The specified relatives include spouse, father, mother, brother and sister and also the lineal ascendant or descendant of the individual or his spouse as well as brother/sister of the spouse. In other words, tax on gift money from parents in India or any from the above-mentioned list is not taxable. You should note that even if the entire gift is exempt at the hands of the receiver, the income earned through the gift may be taxable under the clubbing of income provisions of the Income Tax Act. 

For example, if you have gifted ₹10 lakh to your wife, the same would not be added to the income of your wife and will be tax-free. However, if she invests the amount in a fixed deposit, the interest income would be taxable.

  • Gifts received during the wedding of the recipient are usually under the annual gift tax exclusion 2021.

  • Those gifts received in contemplation of the donor and gifts received under a will or inheritance are also tax exempted.

  • Any property received from a local authority as defined under Section 10(20) of the Income Tax Act is tax exempted in India.

  • If you receive property from a fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in Section 10(23C), is under gift tax exemption.

  • A property received from an institution or a trust registered under Section 12 AA is also tax-free.

Provisions on Taxation on Gifts

Kind of gift covered under gift tax India

Monetary Threshold

2021 Gift Tax Limit

Any amount of money without consideration

Total amount > ₹50,000

The whole sum of money received

Any immovable property like land, building etc without consideration

Stamp duty value > ₹50,000

Stamp duty value of the property

Any immovable property for inadequate consideration

Stamp duty value exceeds consideration > ₹50,000

Stamp duty value minus consideration 

Example 1:Stamp duty value ₹2,00,000, Consideration ₹75,000. The taxable amount is ₹1.25 lakh (stamp duty value exceeds consideration by more than ₹50,000)  

Example 2: In Example 1, if consideration is ₹1,60,000, the taxable gift is Nil as stamp duty value does not exceed consideration by ₹50,000

Any property (jewellery, shares, drawings etc) other than an immovable property without consideration

Fair market value (FMV) > ₹50,000

The fair market value of such property

Any property other than immovable property for a consideration

FMV exceeds consideration > ₹50,000

FMV minus consideration (same example in case of immovable property)

How to Save Tax From Gifts?

Tax saving on gift tax India can be done by clubbing it. Any amount exceeding ₹50,000 as a gift from people not specified under the relatives’ list will be taxable. However, you can save taxes on gifting money to family members described above. The provision is available under the gift tax exemption relatives India. As mentioned above, tax on gift money from parents in India is also exempted. When a gift is given to such individuals, the donor’s taxable income remains the same, but the interest acquired by investing the gift amount becomes the receiver’s income and is liable to tax. Such an income does not increase your tax liability and you are not required to include it in your Income Tax Return filings as it is the receiver’s income now.

Various malpractices by some people in India under the gift tax is rampant and therefore comes directly under the scanner of the Income Tax Department. It attracts scrutiny from the department when the amount is huge. In such situations, to save any penalty or additional taxes, individuals involved in the give and take of such gifts should keep all the proper documentation with them to maintain the genuineness of the gift. It becomes more important when an expensive gift is involved. Such documentation will be handy to justify the source of funds if required under the purview of tax on gifts in India.

FAQs

  • ✔️How much is the gift tax in 2021?

    The gift tax is applicable under regular tax slabs. There are various provisions under which the gift tax is charged at the hands of the receiver as ‘Income from Other Sources.’

  • ✔️How much can you gift a family member in 2021?

    You can gift any amount to family members mentioned above and it will be tax exempted. However, the income earned through the gifting amount will be taxable for the receiver.

  • ✔️How do I avoid gift tax?

    There are various ways using which you can save taxes. You can save gift tax by clubbing and also by keeping all the proper documentation handy.

  • ✔️Are gifts from parents taxable?

    No, gifts from parents are not taxable as they are under the gift tax exemption list.

  • ✔️Do I have to pay taxes on a ₹50000 gift?

    No, you will not have to pay any gift tax on a ₹50,000 gift. However, if the gift amount is more than ₹50,000, the entire gift amount becomes taxable.