Gift Tax In India

The Indian Culture has thousands of years of history as well as various traditions attached to it. It is also a birth place of many religions like Hinduism, Sikhism, Buddhism etc. Besides, India is a country with diversified culture where each occasion is a reason to celebrate and show love and affection to close family members and friends. Gifts are exchanged on numerous occasions like Diwali, Raksha Bandhan, Christmas, New Year etc. In addition to this, some people also consider Gifting as a status symbol. But little did you know that these gifts are taxable after a certain limit and one needs to pay income tax on gifts received by them. It was introduced with an objective to impose tax on receiving and giving gifts under certain specific circumstances. It is important to know taxation involved with regards to gifts in India in order to avoid any further unplanned tax outflow.

Tax was levied on gifts in the hands of the person who receives it by enacting the Gift Act, 1958. However, it was later abolished in the year 1988. And six years later it was re-introduced under section 56(2) (V) of the Income-tax Act, 1961, for taxing gifts in the hands of the recipient. So, as per the law amended in the year 2017, ‘‘gifts received by any person are taxed in the hands of recipient under the head ‘Income from other sources’ at normal tax rates”.

While the Income Tax Act permits you to receive genuine gifts, there are set of rules regarding “gift tax 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.

Any exceptions?

Gifts up to Rs 50,000 per annum are exempt from tax in India. In addition, gifts from specific relatives like parents, spouse and siblings are also exempt from tax. Gifts in other cases are taxable. Tax on gifts in India falls under the purview of the Income Tax Act as there is no specific gift tax after the Gift Tax Act, 1958 was repealed in 1998.

Are gifts in cash and kind, both taxable?

Yes, all kinds of gifts including cash, gold, real estate, paintings or any other valuable item are taxable. However if the cash amount or value of the gift in kind is less than Rs 50,000 the same would not be taxable.

New Change in the budget 2019

With the passing of the Finance Bill 2019 in Parliament, some changes have been made in the rule regarding the taxation of gifts given by resident individuals to non-resident Indians (NRIs). 

According to changes made at the time of passing Budget 2019, only money paid by a resident individual to a 'person outside India without any consideration will be considered as taxable in the hands of the receiver'. 

Gift Tax Exemptions

As rules laid by the Government there are certain gifts that do not attract tax as and when received by any person in the form of Gift.

Note: Donee Meaning – A person who receives a gift is known as donee.

CATEGORY OF DONE (RECIPIENT OF GIFT)	CATEGORY OF DONOR	OCCASION COVERED
Individual A gift from relative is not taxable for a donee, but income from such gifts may be taxable in some cases For Instance: deemed owner concept in house property or clubbing provisions etc.	Relative Family members like your spouse, brother, sister of self and spouse, parents or parents in law or descendant of self or spouse are mentioned here	NA
Individual	Any person	Marriage of an Individual
Any person	Any person	Under a will or by way of inheritance
Any person	Individual	In contemplation of death of donor or payer
Any person	Local authority – Panchayat, Municipality, Municipal Committee and District Board, Cantonment Board	NA
Any person	Any fund, foundation or university and other educational institution. Or someone from medical institution or any trust or institution referred in Section 10(23C)	NA
Any person	Any religious or charitable trust under section 12A or section 12AA	NA
Any trust, university, fund, educational institution which is established for charitable/religious/educational /philanthropic purpose and approved by prescribed authority [Refer Section 10(23C) (iv) (v) (vi) and (via)]	Any person	NA
Members of HUF	HUF	Any distribution of capital assets on total or partial partition of a HUF
Trust created or established solely for the benefit of relative of the Individual	Individual	NA

Disclaimer:

There is excessive tax planning in India using gifts which apparently fall under the scrutiny of the tax department, especially if it’s in huge quantity. Therefore, it is important to maintain documents to establish the genuineness of gift received.