What is gift under income tax laws?
Cash – gift in the form of cash/draft/cheque
Movable – gift in the form of jewelry, shares, drawings, paintings, sculptures, gold bars etc.
Immovable – gift in the form of land or building
Gifts that are exempt from tax
Any gift received by individual or HUF in cash or kind is taxable in the hand of individual if the value of gift exceeds Rs. 50,000.
However, gifts are exempt from tax in certain conditions:
- Gifts received in cash or kind with value less than Rs. 50,000
- Gifts received in marriage
- Gifts received through will and inheritance
- Gifts received in contemplation of death of the giver
- Gifts received from any Local Authority as defined in Section 10(20)
- Gifts received from any fund or foundation or university or other education institution or hospital or other medical institution or any other trust or institution referred to in section 10(23C)
- Gifts received from any fund or Institution registered under Section 12AA
- Gifts received from a relative
Who are relatives under Income Tax Act?
In case of Individual:
- Spouse of individual
- Brother and sister of individual and their spouse
- Brother and sister of spouse of individual
- Brother and sister of either of the parents of individual
- Any lineal ascendants or descendants of individual
- Any lineal ascendants or descendants of spouse of individual and their spouse
In case of HUF:
How are gifts taxed?
Gifts are taxed under the head ‘Income from other sources’. Movable and immovable property received as gifts will be taxable as under:
Movable property received as gift is taxed when Fair Market Value of property is greater than Rs. 50,000
- If the property is received without consideration then the taxable amount is equal to the total fair market value of property.
- If the property is received with consideration then the taxable amount is equal to total fair market value less consideration.
Immovable property received as gift is taxed when stamp duty value on property is greater than Rs. 50,000
- If the property is received without consideration then the taxable amount is equal to the total stamp duty value of property.
- If the property is received with consideration then the taxable amount is equal to the total stamp duty value of property less consideration.
Tax Planning Tip:
- Any gift by one spouse to another without adequate consideration or under an agreement to live apart will attract clubbing provisions. So any income derived by the spouse out of the gift will be taxable in the hands of the person gifting it.
- As any income (other than the manual work done by him; or through any activity involving application of his skill, talent or specialized knowledge and experience derived by minor child) gets clubbed in the hands of the parent having higher taxable income, therefore gifting the amount to minor children may not help the tax situation.
- If you have any close family member (covered relative) who fall in nil or lower tax bracket then you can save significant taxes by gifting/transferring your 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 you gift anything to your daughter-in-law without adequate consideration then any income derived by her out of the gifted amount/property will be clubbed in your hands.