Who does not love a thoughtful gift? We all do. However, in finance context, a gift is something of value (usually Rs 50,000 and above) given to a loved one. Please remember that inheritances are not considered gifts.
With the number of festivals and other auspicious events of great importance in India, gift tax is of utmost relevance. Aside from cash, parents gifting their child a car, brothers gifting sisters on Raksha Bandhan, and children gifting a luxury holiday to parents are all examples we are familiar with.
Receiving gifts could no doubt be exciting, but it is equally important to keep yourself well informed about the possible income tax implications of gift receipts.
Taxability
The recipient of gifts is liable for income tax in India, subject to certain conditions. Let’s move on further to understand taxability of gifts a little more in detail.
Cash gifts
If you have received gift in the form of cash, rest assured that the cash you have received would be taxable only if the amount exceeds Rs 50,000.
Gifts other than in cash
Gifts other than in cash could be either in the form of an immovable asset like land, house etc, or a movable asset like jewellery, utensils, drawings, shares etc.
Immovable asset received as a gift means you have received the asset without having to pay anything in consideration for the same. To tax such receipts, law prescribes something called the Stamp Duty Value (SDV). This is nothing but the value of the property adopted by stamp valuation authorities for determining the stamp duty. As regards taxability, such gifts would be taxed only if the SDV exceeds Rs 50,000, else, the gift transaction remains tax free.
In a scenario where you receive movable assets as gifts, their taxability depends on their Fair Market Value (FMV). If the FMV exceeds Rs 50,000, the FMV entirely is taxable, else, the gift is exempt in your hands.
All the aforementioned receipts, if taxable, must be offered under the head “Income from other sources”. The rate of tax that would apply would be the rate prescribed for the income slab the individual falls under.
Tax-free gifts
The gift taxation rule was introduced more with an objective to check instances of tax evasion, where taxpayers could get away from paying taxes by diverting their income to others under the garb of a gift. However, subjecting even genuine gift transactions to income tax would have been unfair. Certain exceptions were introduced to the gift taxation rule, wherein gifts on certain prescribed occasions or from certain specified people were considered tax-free. Given below are some such instances:
Gift from a relative
Any gift received from a relative is completely tax-free. A relative has been specifically defined under law and includes an individual’s spouse, brother or sister, brother or sister of the individual’s spouse, lineal ascendant or descendant of the individual or spouse, etc.
Gift by way of a will or inheritance
When a taxpayer receives anything from another person through a will or has inherited it from the forefathers, then whatever is received by the taxpayer is fully exempt from tax.
Gifts received at the time of marriage
Gifts pouring in on the occasion of one’s marriage is given. Law has provided for a complete exemption of such gifts too irrespective of who the giver is.
The above discussion is sure to give you a brief understanding of the gift tax law prevalent in India, and will help you plan your gift receipts better.
(The writer is founder and chief executive officer of ClearTax)