Understanding the implications of gifts in India is important to avoid any unpleasant surprises. In this post, we break down the gift tax rules in India.
We take you through the requirements, relative exemption list, and more so you can give generously while staying within the legal limits.
What is Considered a Gift for Tax Purposes in India?
In India, the Income Tax Act of 1961 (specifically Section 56(2)(x)), governs the taxation of gifts.
For tax purposes, a gift is defined as any property, sum of money or valuable item received without consideration (payment).
The types of taxable gifts can include:
- Cash & Bank Transfers
- Movable Property such as jewelry, shares, valuable paintings
- Immovable Property such as land or buildings
Tax Implications of Gifts in India: What, Who & How?
In order to understand the tax implications of gifts in India, we need to break it down into the following three parts:
On What Gifts Are Taxes Laid?
Gifts are taxable if their aggregate value exceeds INR 50,000 in a financial year. The following types of gifts are subject to tax:
- Cash Gifts:
Include monetary gifts given through cash, cheque, bank transfers from non relatives.
Taxable if the total amount exceeds INR 50,000 during a financial year
- Non-Cash Gifts:
For immovable property, if the stamp duty value of the property received exceeds INR 50,000, it is taxable based on that value.
If immovable property is purchased for inadequate consideration, the difference between the stamp duty value and the purchase price is taxable if it exceeds INR 50,000.
Items like jewelry or shares are taxable if their fair market value exceeds INR 50,000
- Gifts from Employers:
Any gift received from an employer that is valued at less than INR 5,000 in total during a financial year is tax-free.
If the aggregate value of gifts exceeds INR 5,000, the entire value is considered taxable.
Who Pays the Gift Tax?
Under Section 56(2)(x) of the Income Tax Act, gifts are taxed in the hands of the recipient if their total value exceeds INR 50,000 in a financial year
How to Pay Gift Tax?
The recipient must declare the value of the gift while filing their Income Tax Returns (ITR) under “Income from Other Sources”.
Employees receiving gifts must declare the value of taxable gifts while filing their Income Tax Returns (ITR) under “Income from Salary.”
The taxable amount will be added to the total income and taxed according to applicable slab rates.
For instance, individuals in the highest tax bracket may pay up to 30% plus applicable cess on gifts received.
10 Exemptions to Gift Tax: Scenarios Where Gifts Will NOT be Taxed!
In India, certain gifts are exempt from taxation under the Income Tax Act. These include:
- Gifts from Specified Relatives:
Gifts from certain close relatives are fully exempt from tax, irrespective of the amount. The tax exemption relatives list includes:
- Parents
- Grandparents
- Spouse
- Children
- Grandchildren
- Siblings (both of the recipient or their spouse)
- Spouse’s siblings (brother-in-law, sister-in-law)
- Parents’ siblings (uncle, aunt)
- Marriage Gifts
Gifts received by an individual on the occasion of their own marriage are exempt from tax.
This is regardless of the value or the relationship with the giver.
- Through Will or inheritance
Any gift or asset, be it property, money, or valuables, received through a will or inheritance is exempt from tax.
- Gifts from Local Authorities, Charitable Organizations & Government Institutions:
Gifts received from specified local authorities, government institutions, or charitable trusts registered under Section 12A or 12AA or Section 12AB of the Income Tax Act are exempt from gift tax.
Starting from Assessment Year 2023-24, this exemption doesn’t apply if a specified person mentioned in Section 13(3) receives the money.
- By Educational institutions or Universities:
Money received as scholarships for education are also exempt.
These are exempt if received from trusts, funds, institutions, educational institutions, universities, medical institutions or hospitals mentioned in Section 10(23C)(iv)/(v)/(vi)/(via) clause.
- Gifts from Employer to Employee (Under Certain Limits):
Small gifts or vouchers received from an employer, which do not exceed INR 5,000 in value during a financial year, are exempt.
- Gifts Received for Charity or Religious Purposes:
Gifts received by trusts, temples, or religious institutions for charitable purposes or religious activities are exempt from tax as they are considered as donations.
- Gifts between Hindu Undivided Families (HUF):
Gifts made by a member to their HUF, or from the HUF to its members, are generally exempt from gift tax.
This is because the HUF is treated as a separate entity under Indian tax laws, allowing family asset transfers without tax.
- Gifts from an Individual by a Private/ Family Trust:
If an individual receives a gift from a private or family trust, and the trust is structured under specific legal provisions, such gifts can be exempt from tax.
However, this may depend on the trust’s terms and compliance with tax laws.
Best Ways of Saving on Gift Tax in India
If you’re looking to legally minimize your gift tax liability in India, here are some effective strategies:
- Gift via a Will or Inheritance: Plan asset transfers through a will, ensuring your heirs receive them tax-free after your passing.
- Split the Gift Across Financial Years: If you’re giving cash or other assets as gifts, consider splitting large gifts across two or more financial years to stay below the INR 50,000 limit for each year.
- Consider Setting Up a Trust: A trust can be an effective way to manage and transfer wealth, especially for estate planning. Assets placed in a trust can be structured to pass on to beneficiaries without triggering gift tax if set up correctly.
- Use the HUF structure: Gifts between Hindu Undivided Families or from an individual to their HUF are exempt.
- Documentation and Compliance: Keep proper documentation of all gifts received and their values. This will help in case of any scrutiny by tax authorities and ensure that you can substantiate your claims for exemptions when filing your income tax returns.
- Personalized advice: Seek advice from a tax professional like PKC Management Consulting to understand the specific tax implications of your gifting situation.
Frequently Asked Questions
- How are gifts taxed in India?
In India, gifts exceeding INR 50,000 in a financial year are taxed as “Income from Other Sources” at the recipient’s applicable income tax slab rate. Gifts from relatives are exempt from tax, regardless of the amount.
- Who are the relatives exempt from gift tax?
Gifts received from specified relatives, including parents, siblings, spouse, and lineal descendants, are exempt from tax without any monetary limit.
- How much money can you gift to a family member tax-free in india
You can gift up to INR 50,000 to a non-relative without incurring any tax liability. However, there is no limit on the amount you can gift to relatives without attracting gift tax.
- How to avoid gift tax?
To avoid gift tax, ensure that gifts from relatives remain within the exempt category or keep non-relative gifts below INR 50,000. You can also consider gifting during special occasions like marriages where exemptions apply.
- On what occasions are gifts from non relatives tax free?
Any gifts received during the occasion of marriage are fully exempt from tax, regardless of their value or the giver’s relationship to the recipient
