What are the limits of Gift Tax in India? Do I need to pay tax on gift in India? What are the Income Tax rules on gifts received?
Receiving gifts is a habit from our childhood and we cherish those memories. But do you know that certain gifts have tax implications. While the Income Tax Act permits you to receive genuine gifts, there are set of rules regarding “tax on gift in India“. A detailed understanding of the rules on this will help you in answering the queries from the tax department, in case your IT return is taken up for scrutiny.
Tax on Gift in India – The 5 categories that attracts tax
The following 5 categories of gift will attract tax in India as per the current tax laws.
1. Any amount of money (in cash, cheque or draft)
If the total amount of money received by an individual from one or more persons during a previous year exceeds Rs. 50,000/-, the whole of such amount will be chargeable to tax. If you receive Rs. 40,000 as gift from anybody, there is no tax liability, but if you receive another Rs. 20,000 in the same year, you have to pay tax on the entire Rs. 60,000, because you have exceeded the limit of Rs. 50,000.
2. Immovable property without consideration
If any immovable property (without any consideration) is received, the stamp duty value of which exceeds Rs. 50,000/-, stamp duty value will be chargeable to tax in each such transaction.
3. Immovable property for a consideration which is less than the stamp value
If any immovable property is received for a consideration which is less than the stamp value of the property by an amount exceeding Rs. 50,000/-, then the difference between stamp duty value and consideration is chargeable to tax in every such transaction.
4. Movable property without consideration
If aggregate fair market value of movable properties such as shares and securities, jewellery, archaeological collections, drawings, paintings or any work of art received without consideration during a previous year exceeds Rs. 50,000/-, the whole of aggregate fair market value of movable properties will be chargeable to tax.
5. Movable property for a consideration which is less than the fair market value
If movable property such as shares and securities, jewellery, archaeological collections, drawings, paintings or any work of art is received for a consideration which is less than the aggregate fair market value of the property by an amount exceeding Rs. 50,000/-, then the difference between aggregate fair market value and consideration is chargeable to tax.
Tax on Gift in India – Exemptions
1. Any amount/property received from a relative
Yes, you can receive any amount as gift from your relative without any tax liability. The following are the relatives considered for this exemption:
(a) Spouse of the individual
(b) Brother or sister of the individual
(c) Brother or sister of the spouse of the individual
(d) Brother or sister of either of the parents of the individual
(e) Any lineal ascendant or descendant of the individual
(f) Any lineal ascendant or descendant of the spouse of the individual
(g) Spouse of the person referred to in clauses (b) to (f)
2.Money/property received on the occasion of marriage
The gifts received by bride and the groom from relatives, friends or anybody on the occasion of their marriage are free from any tax liability. The gift is exempt on the occasion of marriage and not on the day of marriage, hence gift received on tilak, tika and similar religious function prior to marriage day will also be exempt from tax.
3.Money/property received by way of a Will or inheritance
Any amount or property received by way of a Will or inheritance will be free from any tax in India.
How to document the gift transactions for scrutiny by tax authorities?
It is recommended that you keep documents for all the gifts received, so that in case of any scrutiny by tax officials, you can present the details. Gifts by way of movable property is required to be made in stamp paper and stamped. Registration of gift deed is not required in this case. But for making a gift of immovable property, the transfer must be effected by a registered deed. Gift of immovable property which is not registered is not valid as per law and cannot pass any title to the receiver.
Tax on Gift in India – Conclusion
The Gift Tax was introduced in India in 1958, but tax on gift in India is now coming under the Income Tax Act.
So, if you are receiving more than Rs. 50,000 in a year from anybody other than your relatives, please remember there is a tax on that gift.
We hope this article will help you to understand the tax on gift in India. Do not forget to add your valuable comments to this post.