Gift Tax in India

The Parliament of India introduced the Gift Tax Act in 1958, and gift tax is essentially the tax charged on the receipt of gifts. The Income Tax Act states that gifts whose value exceeds Rs.50,000 are subject to gift tax in the hands of the recipient.

Gifting is one of the many ways to express love and affection. It is a custom to gift your closed ones during occasions especially in India. But did you know the gifts are taxable?

As per the Income tax act of 1961, if the value of the gift exceeds Rs.50,000 then the gift is taxed as income in the hands of the person who receives the gift.

What is Gift Tax Act?

Gift tax act was an act introduced by the Parliament of India in 1958. It was introduced to impose tax on giving and receiving gifts under certain circumstances which is specified under the act. These gifts can be in any form including cash, jewellery, property, shares, vehicle, etc.

Gift Tax on Transfers:

The gift tax is also applicable on certain transfers that is not considered as a gift. The transfer of existing movable or immovable property in money or money’s worth qualifies for gift tax.

Gift Tax Exemptions:

Though gift tax is applicable on gifts whose value exceeds Rs.50,000, the gift is exempted from tax if it was given by a relative. The income tax rule specifies who can be considered as a relative and the list is mentioned below.

  • Parent
  • Spouse
  • Siblings
  • Spouse’s siblings
  • Lineal descendants
  • Lineal descendants of the spouse

There are several other situations where the gifts can be exempted from tax. Listed below are other situations in which the gift will be exempted from tax.

  • Gifts received during weddings are usually exempted from tax.
  • Gifts received as part of inheritance is exempted from tax.
  • Cash or rewards received by local authorities or educational institutions on the basis of merit is exempted from tax.

Frequently Asked Questions:

  1. Are Gifts Received by a Minor Taxable?

    Gifts received by a minor will be taken into consideration and will be clubbed with income if both the parents are earning taxable income. It will be clubbed with the parent who is earning the highest income.

  2. Are Gifts Received by a NRI Relative Taxable?

    Gifts received by a NRI relative is exempted from gift tax.

  3. Is Gift from a Spouse Exempted?

    Gifts from a spouse is usually exempted from gift tax but the income earned from the gift (if any) will be clubbed with the individual’s income and taxed.

  4. What about the Income Earned from a Gift?

    According to Income Tax rules, income earned from a gift will not be exempted from tax and will be treated as individual income and will attract tax.

News About Gift Tax

  • Gift tax and its implications

    Under the IT Act, 1961, certain types of gifts received by individuals and companies are considered as income. Hence, these are liable to taxation in the hands of the recipient.

    As per Section 56 of the IT Act, earnings that are not included in any of the four income categories, namely, revenue from residential property, salary income, business turnover and capital gains are taxed as Income From Other Sources (IFOS). Some of these incomes include receipt of property or cash at inadequate consideration, dividends, interests, etc. Since gifts received are not included in any of these heads, they are not liable to be taxed.

    The residual clause under IFOS taxes revenue receipts, as opposed to capital receipts. The IFOS provisions also specify what ‘taxable gifts’ are, and those not included in this list are not liable to taxation. For instance, gifts that do not involve unexplained cash credit and receipts from shareholders are not taxable. Moreover, if an unlisted company is crowdfunded, and the funds received for the issue of shares do not exceed the fair market value, these amounts are not taxable.

    However, when a shareholder acquires shares in addition to his entitlement, to the disadvantage of other shareholders, the value of the bonus shares will be taxed as IFOS.

    24 October 2016

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