It is wonderful to receive gifts from your family and friends, especially during festivals and celebrations. However, as per the Gift Tax Act, 1958, the gifts you receive may be chargeable to income tax under the head “Income from Other Sources”.
Read this guide by H&R Block to know what gift tax is, be fully aware of the gift tax rules and ensure that you do not have any unplanned tax outflow.
Any asset you receive from someone without giving anything in return to them (without consideration) is considered as a “gift” by under income tax laws. The following are the categories of gifts under the I-T Act, 1961:
The income tax levied on the gifts that you receive in money or its worth and which is over and above a certain limit by the income tax department is commonly referred to as gift tax in India.
The gifts you receive will be taxed at the normal income tax slab rate applicable to you. The following table contains the details of the type of gifts, the minimum value of gifts at which tax is applicable, and the amount which will be chargeable to tax:
|Type of Gift||Condition for Taxability||Amount Taxable|
|Money without consideration||Sum > Rs 50,000||Total amount of gift received|
|Immovable property without consideration||Stamp duty value > Rs 50,000||Stamp duty value of the property|
|Immovable property with inadequate consideration||Stamp duty value exceeds consideration amount by > Rs 50,000||Stamp duty value less consideration|
|Movable property without consideration||Fair market value > Rs 50,000||Fair market value of the property|
|Movable property with inadequate consideration||Fair market value exceeds consideration amount by > Rs 50,000||Fair market value less consideration|
To determine the taxability of a gift which is an immovable property, the stamp duty value is considered. It is possible that the selling price of the property is higher/lower than the stamp value. In such a case, the rules under section 50C are applicable to determine the stamp duty value.
Generally, if the value of the gift exceeds Rs 50,000, you must pay tax on it. However, this rule is not applicable for some gifts, which are completely tax-free, irrespective of their value. Therefore, you do not have to pay any tax when you receive gifts in the following situations:
Here is nice chart in the form of an infographic which will help you easily understand taxability of gifts, exemptions and other rules. Please click on the below image to see the full infographic.
As per the Income Tax Act, a “relative” can be any of the below-mentioned people:
To ensure that the exemptions on gifts are not misused by the taxpayers to escape tax, the ITD scrutinises gifts, especially when their value is high. Therefore, it is important that you maintain systematic documentation of the gifts in the form of a “gift deed”.
A gift deed is a legal document which describes the transfer of the gift. It should contain the following information:
SIDENOTE: Apart from the gift deed, it is also important for the donor to have proof of the source of funds to buy the gift.
Registration of the gift deed is required for transfer of immovable property. Therefore, you must pay a stamp duty fee when you make the gift deed. The stamp duty on gift deed varies from state to state, and depends on the relationship between the donor and the donee.
If you gift money to your wife, it will be tax-exempt only in her hands. You must still pay tax on the complete amount you gift your wife, as it comes under “taxable income” for you.
You can indirectly save tax by giving a gift to your wife if she invests the money in a high return yielding investment, such as ELSS. If she does not have any income, the return on this investment will not be taxed, as she falls under the exemption limit.
In case your non-earning wife earns an income from the gift you give her, the income will be clubbed with your income for tax purposes. However, if she is an earning individual, she will be liable to pay tax on this income.
Our in-house tax experts can help you with your tax planning to ensure that you receive maximum tax benefits!
[ Read More: Taxability of Gifts ]
If you have any close family member (covered relative) who falls in nil or lower tax bracket, then you can save significant taxes by gifting/ transferring your return yielding investment in their name.
But, do consider other factors such as succession issues before you transfer anything to your relative just for tax-saving.
If your parents are retired, they can invest the money you gift them in a high return investment scheme and save the overall tax liability of your household.
Let’s look at different situations where giving gifts attracts income tax.
A. The Gift Tax Act was an Act introduced by the Government of India to levy gift tax on recipient of gifts. However, it was abolished in the year 1998. Later in the year 2004, it was partially renewed by introducing section 56(2) in the Income Tax Act, 1961 to levy income tax on the recipient of gifts.
A. Gift tax is a term commonly used to describe income tax, which is a direct tax levied on gifts.
A. As your friend is not considered a “relative”, the whole amount of Rs 90,000 will be chargeable to tax.
A. Gifts are taxable in the hands of the receiver in India if the value of the gifts exceeds Rs 50,000. However, gifts from relatives are tax-free. Therefore, gifts from grandparents to grandchildren are tax-exempt for the latter.
When you receive a sum of money as a gift, you must consider investing it to build your financial health. Your investment decision is based on several factors. However, if you intend to save tax, you can consider investing in tax-saving schemes under section 80C.
How Can H&R Block Help You?
Saving taxes and accurately filing income tax return becomes very easy with careful tax planning along with professional help. You can either use our intuitive income tax e-filing platform to easily e-file your tax return or let our tax experts file it for you. We have a team of in-house tax experts who can accurately file your tax returns online while giving you maximum tax benefits.