Gifting somebody is a common norm followed since prehistoric ages. Till date, gifting is considered a healthy and courteous habit. It is a way of expressing your gratitude. In this article, we will talk about income tax which is applicable to these high priced gifts. Gifts can be referred as a huge sum of money or property. There are rules and terms for such gifts. We also know the exemptions to these taxations and how we can save on taxes.
What gifts are taxable?
Gifts which levy income tax can be in the form of cash or property (jewelry, painting, shares, sculptors, archaeological collection, gold/silver bars etc.). Gifts can also be in the form of buildings/ land (except agricultural land). Hence, any other asset apart from this will not have income tax deductions.
How does Income Tax Department set the Value of gifts?
The value of the gifts is calculated as such:
- Stamp duty value for all immovable property.
- Invoice for jewelry, archaeological collections, drawings, paintings or sculptures.
- The transaction value as recorded for gifts in the form of shares.
Income tax on gifts
Following is the income tax which the presenter must pay on various gifts offered to another person.
Gift received up to INR 50,000 in a year
If the gifts received by a person during a financial year in the form of cash or property as mentioned does not exceed INR 50,000, then there is no taxation. The sum of all the gifts received by one person should not cross INR 50,000 post which it is taxable as per the Income Tax Act, 1961. Thus, I can receive 7 gifts of INR 7000 each. This thus sums up to INR 49,000 and it will not be taxable. If I receive one more gift then tax will be levied on the complete amount and not just on the exceeding amount.
If any relatives of yours gift you something precious, it is not taxable. Hence, the list of relatives include
- Brother’s Wife
- Sister’s Husband
- Spouse’s Brother
- Spouse’s Brother’s wife
- Also, Spouse’s Sister
- Spouse’s Sister’s husband
- Spouse Father
- Spouse’s Mother
- Then, Spouse’s Grandfather
- Spouse’s Grandmother
- Spouse’s Great Grand Father
- Then, Spouse’s Great Grand Mother
- Mother’s Brother
- Mother’s Brother’s Wife
- Next, Mother’s Sister
- Mother’s Sister’s Husband
- Father’s Brother
- Father’s Brother’s Wife
- Father Sister
- Father’s Sister’s Husband
- Great Grand Father
- Great Grand Mother
- Son’s Wife
- Daughter’s Husband
- Grandson’s Wife
- Grand Daughter
- Finally, Grand Daughter’s Husband
Thus, nothing that your relatives gift (as in the list) is taxable.
There is no tax on gifts if you receive gifts on the occasion of wedding. This gift does not have a maximum limit. Also, there is no tax on gifts from relatives as well as non-relatives.
If you receive cash or property as an inheritance, then the amount is not taxable. There is no maximum limit on the amount you can receive in someone’s will.
Movable property means shares, jewelry, archaeological collections, drawings, paintings, sculptures or art. There are two types, with and without consideration. If the gift is without consideration then it is taxable if it exceeds INR 50,000. If it is with the consideration which means it is less than the fair market value then amount exceeding is Rs.50,000, then the difference between fair market value and the consideration is chargeable to tax.
In the case of immovable property like land or building, the taxation is different. If the stamp duty value on the property is less than INR 50,000 then it is not taxable. Therefore, it is taxable only if it exceeds INR 50,000.
Finally, other gifts exempted from taxes are:
- Gifts from local authorities.
- Gift from any fund or foundation or university or other educational institution or hospital or any trust or any institution referred to in Section 10 (23C).
Gifts in IT returns
You need not show any gift which has value less than INR 50,000 in IT returns. Also, if the gifts fall under any of the exempted categories as mentioned above, it is free of taxation. You can document all the gifts of value above INR 50,000. Transfer of property requires a legal documentation. Moreover, you should report the gifts as other sources in your IT returns.
A gift deed is a legal documentation of any gifts received of high value. Hence, it includes details of the gifts, donor, donee details, the relationship between them and two witness signatures.
5 Frequently asked questions on gift taxes in India
What is the gift tax?
Taxes levied on gifts by Income Tax Department of India above the limit of INR 50,000 is called gift tax.
Is gift received from friend taxable?
Yes. Only gifts received from your relatives not taxable. Although, if your friend has gifted you above INR 50,000 on your wedding then it is not taxable.
Do I have to pay tax on money given as a gift?
Yes. Cash above INR 50,000 is taxable.
What is the maximum tax-free gift amount for 2017 in India?
Who pays taxes on a gift?
The giver must file IT returns on gifts. Therefore, you can stop worrying about the gifts you gift or receive which might have taxation.