Do you need to pay Tax on Gifts received?

We all receive gifts from our parents and relatives, but the question is what are the tax implications of gift received? Do we need to pay income tax on gifts received? How much tax do we need to pay on gifts?  Or is it exempt from income tax? What kinds of gifts are exempt for income tax? If gifts are exempt from income tax, is there another tax called Gift Tax? These are some of the questions that come to our mind once we start wondering about taxation of gifts. Rest assured your doubts will be gone by the end of the article. Let me answer the last question first- i.e. currently in India we don’t have any separate Act for taxation on gifts. But the government has incorporated certain legislation in the Income Tax act itself to govern Taxation on Gifts. Going further a major portion of gifts are exempt from taxation, due to the fact that gifts are given by people from an already taxed amount of income. Hence, taxing gifts from close relatives would amount double taxation indirectly. In this article we will discuss some of the provisions and exemption on gift taxation. There are many scenarios in which we receive gifts from our parents, relatives and friends first let us understand some of the scenarios-

• Gifts received from relative.
• Received some gifts on occasion of wedding.
• Amount received as gift or inheritance.
• Property movable or immovable received as gift.

Now let us understand the scenarios in detail- Gifts received from relatives No tax on gift received from specified relatives. According to the income tax act any gift cash or kind, received from relatives is not chargeable to tax. Even the amount of gift does not matter. Following is the list of specified relatives according to the income tax act-

1. Parents
2. Parents siblings and their spouse
3. Siblings
4. Spouse of siblings
5. Daughter and son
6. Spouse of daughter and son
7. Spouse
8. Spouse’s parents
9. Spouse’s siblings and their respective spouse.

However, gifts received from any other relative above the amount of 50,000 are chargeable to tax under the head Other Sources. This point will be understood better in the next segment.   Gifts upto Rs 50,000 per year is not taxable

• The first major rule which every person should know is that there is no tax to be paid on gifts received (cash or kind), if the amount of the gift is upto Rs 50,000 in a year. However if the total amount crosses Rs 50,000. Then you will have to pay the tax on the total amount received (not additional). For example – If a friend of yours gifts you Rs 30,000 in a given year, you don’t have to pay any tax on that amount, as it’s below the limit of Rs 50,000.
• Now suppose you also get Rs 20,000 after that, still you don’t have to pay the tax as the total worth of the gift you got in the year was Rs 50,000 till now (less than the limit of Rs 50,000). But now, if someone gifts you another Rs 10,000. Your total gifts in a year are Rs 60,000, so you will have to pay tax on the total amount of Rs 60,000, not just on additional Rs 10,000. This Rs 60,000 will be included in your income under the head Other Sources and you will have to pay tax on this Rs 60,000, as per your tax slab.
• Since 1/10/2009, Section 56(2) has been amended and the scope of “gifts” will include even immovable properties or any other property besides sums of money under its ambit.

Gifts received on occasion of wedding Gift of any amount received on the occasion of marriage whether from a relative or non-relative is not taxable. This could be set forth as one of the advantages of getting married. However the time of receiving the gifts is not clearly stated in the provisions of the law i.e. whether the gift needs to be received on the exact date of the marriage or not is not specified. Property movable or immovable received as gift Getting into the specifics gifting of immovable property involves valuation methods: Before moving forward it should be clear that any property if received from relatives will be exempt irrespective of the amount or value. The valuation for Immovable property is as follows-

• If the property is gifted without any consideration then if the stamp duty value exceeds Rs. 50000/-, stamp duty value will be taken
• If the property is gifted for a consideration, then the actual value of the property will be taken.

This would be the taxable amount under the head Other Sources. Valuation for other Property-

• If gifted without consideration and fair market value exceeds 50,000, then the fair market value will be taken as the final value
• If gifted for a consideration and the Fair Market Value (FMV) less consideration is greater than 50000, then the FMV less consideration amount will be taken as the value of the gift.

This would be the taxable amount under the head Other Sources. Amount received as gift or inheritance When any sum of money or any property is received under a will or by way of inheritance, it is totally exempt from Gift Tax. So if you get a real estate worth Rs 50,00,000 and some other things worth Rs 30,00,000 through inheritance , you will not have to pay any tax on that amount received. Keeping a track of taxation on the gifts received by us is very important to avoid penalties and litigation expenses at a later stage. Thanks for reading for this article. Please feel free to write to us, We want to hear it all!Suggestions? Complaints? Feedback? Requests?  at [info@taxmantra.com] or call us at +91 88208208 11. We would be more than happy to assist you.