Taxability of Gifts under Income Tax Act 1961

Understanding the Taxability of Gifts under Income Tax Act 1961: Exemptions and Taxable Gifts Explained

The concept of gifts in India has undergone several changes over the years, particularly in terms of taxation. Initially introduced in April 1958 under the Gift Tax Act, the taxation of gifts aimed to regulate the giving and receiving of gifts under specific circumstances. However, the Gift Tax Act (GTA) was abolished in October 1998, making all gifts tax-free.

In a new form, the GTA was reintroduced and incorporated into the income tax provisions in 2004, with subsequent amendments in 2017. This article aims to provide a basic understanding of the taxability of gift in India as per the Income Tax Act 1961.

Under the Income Tax Act, a “gift” can refer to money or any movable/immovable property that an individual receives from another individual or organization without any consideration. Gift received by any person from another person or entity are taxable in the hands of the recipient under the head of “Income from other sources” at the normal tax rate.

The provisions related to gift tax are outlined in section 56(2)(x) of the Income Tax Act. Let’s delve into the types of gifts that are exempted and those that are taxable, along with the quantum of taxable gift.

1. Taxable Gifts:

i.  Gift in cash:

Gift of any sum of money without consideration received in cash in excess of Rs. 50000 is taxable. If the cash receipt exceeds Rs.50000, the whole amount is taxable, not only the amount which exceeds Rs.50000.

ii. Gift of Immovable Property without any consideration:

Gift of any immovable property such as land, building, etc. without any consideration received by any person, whose stamp duty value is more than Rs.50000, is taxable. In this case, the stamp duty value of the property is wholly taxable.

iii. Gift of Immovable property with inadequate consideration:

Gift of any immovable property for inadequate consideration is taxable when the Stamp duty value exceeds consideration by Rs 50,000. Portion of taxable gift in this case will be the amount by which stamp duty value of the property exceeds the consideration.

iv. Gift of Property like Jewellery, Shares, Drawings, etc without Consideration:

Gift of any property like jewellery, shares, drawings, etc., without consideration is taxable when the fair market value (FMV) of the property exceeds Rs.50000. In this case, the FMV of the property is fully taxable.

v. Gift of any property other than Immovable property for a consideration:

Gift of any property other than Immovable property for a consideration is taxable when the FMV of the property gifted exceeds the consideration by Rs.50000. Here the taxable value of the gift will be the amount by which the FMV of the property exceeds the consideration.

2. Exempted Gifts

Understanding the exempted gift under the Income Tax Act 1961 is essential for individuals to navigate the taxation of gift effectively. Here’s a breakdown of the categories of exempted gift:

i. Gift from Specified Relatives:

Category of Donee: Individual

Category of Donor: Relative

Subject to Occasions/Conditions: Gifts from defined relatives such as spouses, siblings of self and spouse, siblings of parents or parents-in-law, and any lineal ascendants or descendants of self or spouse are exempt from tax. However, it’s important to note that income from such gifts may be taxable in some cases for the donor. For instance, clubbing provisions, or the deemed owner concept in house property.

ii. Gift for Specific Occasions:

Category of Donee: Individual

Category of Donor: Any Person

Subject to Occasions/Conditions:

Gifts for marriage purposes are exempt from tax.

Gifts received through wills or inheritance are also exempt.

iii. Gift on Certain Events:

Category of Donee: Any Person

Category of Donor: Individual

Subject to Occasions/Conditions: Gifts received on the death of the donor are exempt from tax.

iv. Gift to Certain Entities:

Category of Donee: Any Person

Category of Donor:

(a) Local Authority

(b) From any fund, foundation, university, educational institution, hospital, medical institution, trust, or institution referred to in Section 10(23C).

(c ) Any charitable or religious trust registered under section 12A or section 12AA.

(d) Any fund, trust, institution, university, educational institution, hospital, or medical institution established for charitable, religious, educational, or philanthropic purposes and approved by the prescribed authority.

v. Gift in HUF (Hindu Undivided Family):

Category of Donee: Members of HUF

Category of Donor: HUF

Subject to Occasions/Conditions: Any distribution of capital assets on the total or partial partition of a HUF is exempt from tax.

vi. Trusts Solely for Relative’s Benefit:

Category of Donee: Trust created or established solely for the benefit of the relative of the Individual

Category of Donor: Individual

Subject to Occasions/Conditions: Such gifts are fully exempt from tax.

Conclusion:

Understanding these categories of exempted gifts can help individuals and entities make informed decisions regarding gift-giving and receiving, ensuring compliance with the Income Tax Act 1961. For further clarification or specific details, consulting with a tax advisor is advisable. This knowledge empowers individuals to navigate the nuances of gift taxation effectively and plan their financial activities accordingly.

To know the exempted gifts in more detail CLICK HERE

To Access the CBDT Order Dt 1 March 2024 (Extension of time limit for processing of specified ITRs of AY 2021-22) CLICK HERE

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