In India, Gift is considered as one of the most common methods of exchange of goods, property and money. Since India has a diversified culture, religion and customs thus, Indian people have a lot of reasons to celebrate. They celebrate by way of exchanging gifts as it is the absolute symbol of love and affection and of course of social status too.
What is a Gift?
A gift can be any thing such as money in cash or cheque or any movable or immovable property given by a person to any person, either without any consideration or without adequate consideration, out of natural love and affection.
Following persons whether resident of India or not can be a transfer or transferee –
- Partnership Firm
- Body of Individuals
- Association of Persons
- Co-operative Societies
- Artificial Judicial Person
Indian History of Gift Taxation
Apart from showing love and affection, gifts also became a method of tax planning and tax evasion. Tax planning and tax evasion are two different concepts of every taxation system.
Tax planning is done within the legal framework so as to give minimum tax without tax evasion
Tax Evasion is absolutely prohibited and thus penalised with imprisonment and penalties.
To avoid tax evasion by way of exchange of gifts, Government of India introduced The Gift Tax Act in 1958 to regulate the tax on Gifts. Thus, the Indian Government started to impose tax on giving and receiving gifts under the prescribed circumstances.
However, the Government abolished the Gift Tax Act, 1958 in the year 1998 and made all the gifts tax free. Thereafter, Indians again used Gifts as a way of tax-evasion so the Government had to reintroduce the gift taxation laws in 2004 by including Gifts under the Income Tax Act, 1961.
Taxability of Gifts in India
Gifts are chargeable to tax in the hands of the recipient and are taxable under the last head of Income i.e.“Income from Other Sources” under Section 56(2)(V) of the Income Tax Act, 1961 at prescribed tax rates.
Taxability of Gifts on the basis of Categories of Gifts
- Gifts from Employer
An employee may receive a gift from his employer in a financial year either on ceremonial occasions or to boost the morale of an employee or to appreciate his work.
An assesses receiving any kind of gift from his employer in a financial year is legally bound to disclose the aggregate of the value of gifts received during a financial year in his Income Tax Return.
According to Income Tax Act, if the aggregate value of the gift is either Rs. 5,000 or more in a financial year then the assesses shall be liable to pay tax thereon under the head Income from Salary.
- Gift from Resident to Non-Resident of India
Earlier, any gift given by a Resident of India to Non-Resident of India was totally Tax Free because the recipient was not receiving it within India. But the Indian Government amended the Section 9 of the Income Tax Act by the Finance Act, 2019 to charge tax on such transactions.
Now, any gift in the form of money only given by a resident to a non resident of India is also liable to tax in India. Provided that the total value of Gifts shall exceed Rs. 50,000/-.
However, Gifts in the form of movable or immovable property are still tax free in the hands of NRI recipients.
- Gifts from any other Person
When an assesses has received any gift from any person other than an employer during a financial year and the fair market value of the gift is more than Rs. 50,000 then such gifts shall be chargeable to tax under the head Income from other sources subject to prescribed conditions under Section 56(2) of The Income Tax Act, 1961. Generally,
Taxability of Gifts
1. Money as Gift
If an assesses has received a sum of money exceeding Rs.50,000/- either in cash or cheque without any consideration during a financial year then such amount shall be chargeable to tax as Gift. If the amount is Rs. 50,000/- or less than that then it shall be tax free.
2. Immovable Property as Gift
When an assesses has received any immovable property from any person either without consideration or for inadequate consideration in a financial year then the value of such property shall be considered as deemed income of the assesses and thus it shall be taxed under section 56(2) of the Income tax act in such financial year.
Provided that, such property must fall under any of the following condition –
- That if the total stamp duty value of such property shall exceed Rs. 50,000 then the Stamp duty value shall be chargeable to tax.
- That if the total consideration value of the property is less than the stamp duty value then the difference amount between the consideration and stamp duty value shall be chargeable to tax. Provided that the difference shall be more than Rs. 50,000 and 10% of the total consideration value.
3. Movable Property as Gift
The income tax Act has defined movable property as any property in the nature of jewellery, drawings, shares and securities, paintings, archaeological collections, sculptures, any work of art or billion.
If an assesses has received any movable property described above or any other movable property such as Cars, Furniture etc. in a financial year either without consideration or for inadequate consideration then the assesses shall be liable to pay tax subject to following conditions.
- That if the property was gifted without any consideration and the total market value of the property is exceeding Rs. 50,000/- then the entire market value of such property shall be liable to tax.
- That if the property was gifted for inadequate consideration and the market value of the property is more than Rs. 50,000/- then the difference amount between the Consideration and market value shall be chargeable to tax.
Although the gifts are taxable under the income tax Act, 1961 has also specified certain gifts which are exempted from tax liability.
List of Exempt Gifts is as follows –
BASIS OF GIFTS EXEMPTION
|On the happening of occasion||GIFTS RECEIVED AT THE TIME OF
● Death of donor
|Status of Donor/Donee||WHEN GIFT IS RECEIVED FROM
● Specified Relative
● Local Authority
● Foundation or fund or Educational Institution or Any other person specified u/s 10(23C)
● Trust or Institution registered u/s12A/12AA/12AB
|When transaction is not regarded as transfer||● Distribution of Capital Assets or partial or total partition of Hindu Undivided Family u/s 47(i)
● When an Indian Holding Company transfers any capital assets to its wholly owned subsidiary company u/s 47(iv)(v)
● Transfer of Capital Assets through amalgamation or demerger or reorganization u/s47(vi) to 47(vii)
|Other Notified Persons||When Immovable property is received by a resident of unauthorized colony within the NCT of Delhi subject to condition|