Have you lately received a huge sum in cash from someone? Maybe you got a movable property for which you haven’t paid any monetary consideration? Remember to pay your gift tax – income tax on gifts received.
Since this a gift from someone you don’t really bother to find out about tax liability for the same. You ‘re probably thinking on these lines –
- the Gift Tax Act was abolished more than a decade ago.
- Why should tax authorities bother with me and my small gift when there are bigger fishes to catch?
With weddings, birthdays and festive occasions dotting our social calendar, giving and receiving gifts of different kinds and value is the norm.
Some of these are not considered taxable while some are.
If the sum or value is sizeable but received from certain individuals or groups, you don’t have to report the gift as income.
Where the gift is the kind chargeable to tax and you don’t disclose it, you may end paying a penalty in addition to tax, or worse still, considered a wilful tax evader.
Either pay the gift tax or plan wisely to limit or avoid tax as per IT Act.
Gift Tax – Income Tax on Gifts – Rates, Rules, Exemptions
How do you know which gift type is tax free and which are considered part of your income?
Like our other guides where we have tried to help you with tax related queries, this guide on Gift Taxation in India brings you valuable information basic rules, and taxes payable on certain items.
It will also show you different ways in which you can continue to give/receive gifts without worrying about tax liability.
We’ve tried to split into different sections with examples wherever required, so you easily access information that is relevant to your particular case.
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Why was an abolished Gift tax restored?
The original Gift Tax Act, 1958 laid down tax rules for gifts received by individuals and HUFs.
It was abolished in 1998 as a tax relief measure for middle class tax payers who gave and received gifts.
But when a lot of people, particularly business owners, stated misusing this system to launder money, accumulate black money, and create benami properties in the name of non-relatives, the finance ministry decided to step in to prevent further misuse. In order to that, they incorporated a gift tax system Section 56(2) of Income Tac Act, 1961.
WHAT qualifies as a Gift under tax laws?
The original Gift Tax Act had classified certain categories of items that fell under its purview.
The new tax rules for gifts continues to utilize this for identifying taxable and non-taxable monetary receipts and transferred assets.
Definition of gifts:
- Cash or cheque receipts.
- Immovable property including land, building, house or flat.
- Movable property including vehicles, securities, archaeological collection, bullion, jewellery, antiques, works of art, paintings and sculptures.
Related: Ultimate Capital Gains Tax Guide
Classification of gift and Gift Tax rates
The following items received by individuals and HUF may or may not be subject to gift tax, depending on the basic value clause and exemption categories:
- Gift receipts of Rs 50000 or lower each year –
Any assets or money received as a gift is valued at Rs 50000 or below in a year, it is considered as tax-free gift. If you receive two or three gifts (other the exempted gifts), the total amount has to be fifty thousand or lower.
- Gift receipts of more than Rs 50000 each year –
Assets that are valued above Rs 50000 will be considered taxable for the entire amount, unless tax exemption rules apply to such gifts.
- Immovable property – If the stamp duty value (SDV) of the gifted property exceeds Rs 50000, the entire value is taken as taxable income. If you’ve made part payment, then the balance of (SDV – Payment) will be taxable.
- Movable Property – If the fair market value (FMV) of the asset is estimated to be more than Rs 50000, the entire value is taken as taxable income. Here again, where part payment has been made by you, the balance of (FMV – Payment) will be taxable income.
GIFT TAX RATES
- The cash or cheque amount, stamp duty value of property and estimated value of other assets will be chargeable as income.
- You will have to report gift value under income from other sources.
- This gift income will be taxed along with your total income under the tax slab rates applicable to you in that financial year.
Gifts that are exempt from Tax
For all these exempted gifts, it is important that they be declared in the income tax return without fail for claiming exemption.
- Gifts received by an individual or their spouse for their marriage are completely exempt from gift tax –
- It doesn’t matter that the gift was given by someone who is not a close relative or friend.
- The estimated value of one or all gifts may exceed the Rs 50000 clause mentioned above, but will still not be charged to tax.
- However, gifts directly received by either set of parents or siblings on account of your wedding will not be exempt.
Examples:
- If your uncle gifts you a car on your wedding day, it will be exempt from tax.
- Your parents gift you a house for your wedding, then it will be tax-free.
- If your office colleagues pool money together and buy you a gift worth Rs 50000 or more, it will still be tax-free in your hands.
- If your father or mother’s friend/distant relative gives them a pre- or post-wedding gift (for your wedding) – an LCD TV worth Rs 75000 and your parents don’t hand it over to you, the estimated value will be their gift income and taxed. In this case, the parent who receives the TV will have to include it in his/her income and pay tax on entire Rs 75000.
- Monetary gifts, movable assets or immovable properties received by an individual or HUF under certain conditions are completely exempt from gift tax –
- By legal heirs or nominees under will, succession or inheritance.
- By any employee or dependent of deceased employee from employer in the form of bonus, insurance, gratuity, pension or other sum solely in recognition of services rendered by said employee.
- Any sum received due to likely death of an individual, karta or member of a HUF.
- From local authorities in recognition or appreciation of specific and notable deeds like local or community service.
- From specified registered trust or institution as reward for academic and extra-curricular performance or notable service to society.
- From specified fund or foundation as reward for academic and extra-curricular performance or notable service to society.
- From university or medical institution as reward for academic or extra-curricular performance.
- Any amount received as gift from relatives is not taxable –
For this purpose, an individual’s relatives list includes:
- Parents, grandparents and great grandparents.
- Mother’s siblings and their respective spouses.
- Father’s siblings and their respective spouses.
- Brothers and their respective spouses.
- Sisters and their respective spouses.
- Your husband or wife.
- Your biological, adopted and step children and their respective spouses.
- Your grandchildren, great grandchildren and their respective spouses.
- Spouse’s parents, grandparents and great grandparents.
- Spouse’s brothers and their respective spouses.
- Spouse’s sisters and their respective spouses.
For this purpose, an HUF’s relatives list includes any member of the family.
- Gift payments by NRIs –
- When an NRI parent, child or relative (as defined in the list) transfer cash or property as gift, it is not taxable in the hands of the resident recipient.
- Gift of immovable property abroad is not taxable.
- Gifts to parents from NRE accounts of children are not taxable.
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Clubbing of gift income
- Cash or asset gifted by individual to their spouse is exempt from gift tax, but any income earned from this gift in the form of interest or house rent is taxable. The spouse is charged for such earnings from gift, if they have taxable income or the income is clubbed with that of donor.
- Similarly, if a father-in-law transfers cash or asset as gift to daughter-in-law, any income earned from this gift will either be taxable in her hands or clubbed with father-in-law’s income.
- This rule is applicable to NRI in respect on income earned from gifts given by them to spouse or daugher-in-law.
Points to remember as Donor
- You don’t pay tax on money gifted to someone.
- You can’t deduct this value from your income.
- Income earned from this gift by your unemployed spouse or daughter-in-law alone is clubbed with your income.
- Further income earned from investment of earned income (from gift) is taxable in hands of receiver alone.
- For e.g.: You gift your unemployed wife 2 lakh rupees in March 2015. She gets an FD in her name on 1/4/2015 and earns 10% interest on it. The interest of Rs 20000 will be added to your income for financial year 2015-2016. She reinvests this interest in another FD and gets 9% interest on it for 2015-2016. The amount of interest income of Rs 1800 will be considered your wife’s own income.
- In the above e.g.: If you had gifted to unemployed sister, both original interest on gift and subsequent interest will considered your sister’s income and not clubbed with yours.
You can check on more FAQ from IT website here regarding Gift Tax questions.
How to benefit legally from gift tax exemptions:
- Income earned on invested gifts is not clubbed with donor’s income, if the investment in tax-free. Invest in PPF, EPF, listed shares or tax-free bonds as a gift in in your spouse’s name. Any interest earned on PPF or long-term capital gains earned on sale of bonds or equity shares will be tax-free. Learn to check epf balance enquiry here.
- Gift an investment or loan interest-free money to parents or siblings, especially when their total income is below the relevant threshold levels. Any income earned from the gift such as house rent or interest income will be chargeable as their income from other sources. They may end up paying zero tax, even after accounting for income earned from your gift or loan.
- Gift an investment or give interest-free loans to children who are 18 years and older. They should ideally be still studying or earning less than you. Any income earned from this gift will be taxed in their hands and not clubbed with your income.
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How to keep it legal and stress-free –
- Keep documentation available for the gift given or received, including gift certificate.
- When movable asset is received, ensure the donor provides a signed and stamped gift deed that has been attested by two witnesses.
- When immovable property is gifted, ensure the donor registers the property in your name and provides a signed gift deed that has been attested by two witnesses.
- If you’ve loaned your friend something in excess of Rs 50000 which he/she returns in a few months. Have a IOU note drawn or keep proof in the form of bank statements to prove this wasn’t a taxable gift transaction.
- You may have used your credit or ATM card to make a payment for a friend or colleague and they have transferred the amount to you later on. Keep the bank slips handy to prove this wasn’t a taxable gift transaction.
Have you gifted money or assets to relatives or friends not falling in the above list? While it is prudent that we have the knowledge, we must make them aware of their income tax liability on such gifts.
What is your experience with Gift Tax in India? Have you faced any issues before. Share this post and your experience.
I want to gift my biological brother some money who has been adopted by my grand fathers brother. Will it be taxable at his hand.
si,my friend wants to gift shares worth 25 lacs to his spouse.nowif she sells the share .profit will be taxed in whose hand?second,what will be the cost of the shares,market price od the date of transfer or,the aquisition cost by husband?please reply
NRI non relative person transferred all her Immovable property by way of will after death and all her FD by making him Nominee, will it be taxable in the hands of receiving person ?
I want to gift Rs 1500000 to my son . Kindly suggest income tax liability on both.
I got 10 lakhs from my uncle but tax paid would there any tax or queries still applicable on me
Hello my father is gifting me say some lacks as settlement of his asset and funds to all his kids do i have to pay tax on that amount.
sir
if i am getting some of amount xyz from my taya ji daughter (who is married ) to my my wife account then whether we have to pay tax on it the amount (is in lac) and that amount my taya ji daughter earned from her salary income .please respond me.
Arvind
thanks
Hi,
In past I have given 1-2 Lac money ( by cheque/online) to my friends for there marriage, house purchase, that time I was not much aware of gift money and taxation on it, everybody have return money thru same way.
now does IT department may question about same and what type of proof I may need to provide?
Hello Parani,
Thanks for the informative articles here. But my issue is more problematic than this.
As we keep our cash gifts received with parents, you know before we start actual spending or start earning( when we are young). I had about 70-80K in gifts collected over few years kept with my mother as lived in a hostel. Now due to this demonetization step, I had to deposit all that in my account. But I am a salaried person now and will be filling tax return this year for the first time. Do I have to show this deposit as my income and pay taxes, as only 50K is tax exempt?
My sister is planning to pay my honeymoon expenses. The payment will be in excess of 50k. Can she give the money to me to make payments or she should make the payments herself?
my fax free riend isNRI resing abroad and wants to gift money to me as foreign gift whether such gift is tax
freeor taxable ?how to show such gift income in hands of the donee
hello !
information were needful, I have one query.
i am working in a builders firm since 4 years. i dont own any home and have separated from father.My boss want to gift me a flat. so can he gift me without having any blood relation. what relaion should be mention in the gift deed?
pls help
thankyou
My brother is Australian citizen owning a flat in gujarat. He wants to gift this to his mother….will he or his mother will be liable to pay any tax. How much.
Can husband receive gift from Father in law or Mother in law.
Can Female give gift property to her brother’s son .
I got money worth Rs.5,00,000 from my father in law in August 2015 on occasion of my marriage.I’m deposited that amount in September 2016 as fixed deposit.Is it taxable or not?How can I show this amount in my assessment.Plz reply.
I have created an HUF ( me wife & son). I( karta) have received Rs. 5 lac cheque from my parents . I want to deposit the same into HUF account . Will it be taxable as the amount s more than 50000?
Or
I if I route this amount through my account to HUF
Whether I have to include this amount in my tax return as you said GIVER can never save tax.
or whether i can include my parents in the HUF now
Please guide me
Thanks for a informative post. I have one query as below:
1) Is there any limit on the percent of my earning that I can Gift to my sister or sister in law?
2) If my sister and sister in law both are tax payers and if they earn something by investing the gift amount in their business or by making a bank FD, will I have any tax liability?
3) If I give some cash to my mother out of my income on which I have already paid tax and my mother earns some interest on that amount by making a bank FD out of that, Will it affect my income due to interest earned by my mother FD or is there any other factor that I need to account for in my tax liabilities or declared income?
4) If I give some cash to my mother out of my income on which I have already paid tax, Is there any form of proofs, documents that I need to maintain either for my tax liabilities or for my mothers tax liabilities?
I have invested in mutual funds in the name of my wife(who has no independent source of income). The funds are transferred from our joint bank a/c standing in my name and my wife’s name(payable either or survivor).
2) Is the bank statement or entries in the Pass book are sufficient proof of gifting?
3) Or I have to keep any other documentary proof like stamped undertaking/IOU etc .
Hi I want to know that gift tax is a limit of 50,000/-, is it by individual 50,000 or as a whole.
Ex. If a friend gives me 50,000 for my birthday and relative gives me 50,000. So how to consider as I get whole as 1,00,000 gift for my birthday. Can you please clarify?
Sirs,
I retired from Government of India (GOI) service. Arrears of pension I received, I gifted to my wife opening an FD on her name. Am I exempt from Income Tax, kindly clarify by my mail. .
Hi,
Thanks for this wonderful post.
I have one question though. If I give some money say 10 lac to my parents, then does this 10 lac get removed from my taxable income ? Or i pay tax on this but the returns from the investment done with this money by my parents will not be included in my income.
Thanks,
Raman
My brother wants to give me Rs.12,00,000.00 which he had paid Rs.3,00,000.00 to me via cheque and rest he want to pay me will it attract the taxes or if take money in sons name whose studying, wife is working approx 4lacs a year. Please help me.
Whether a employers gift to employee through a mobile wallet which has a option of transfering wallet money to their bank account and withdraw cash from bank account is tax free under fringe benifit tax in India.
Great post..kindly clarify if below has any tax implications – NRI gifts money to father and that money is used for purchase of agricultural land which gets registered on father’s name.
Good Morning sir
My Friend received gift as Land …stamp Value is Rs 25 lac
Then how it will be taxable …
First …..it will be included under the head CAPITAL GAIN and taxable accordingly.
Second…?
if my wife’s NRI cousin (son of her mother’s sister) gift a sum of Rs 10,00,000. will it attract tax
I want to gift money to my wife who is already earning and filling return .I want to know wheather the interest received on investing the gifted amount will be clubbed in my income or her.
Please send reply
How can documentation be done in case cash gifts & jewellery is recieved during marriage.
If a son transfer money to his father account (having no income source) and father put the money in Fixed deposit. whether interest earned on FD it is taxable to son.
Thank you for the detailed and wonderful post. This is very helpful.
Can you please clarify something for me:
I am a single male (43 years old) and have never filed ITR. I survive on money received from my NRI brother and I work a little as a freelancer. I received over 3 lacs in FY 2015-16 from my brother whereas my personal income was close to 1 lac.
Do I need to file a return (although I don’t have to pay any tax)?
What would be the outcome if I don’t?
Will the tax authorities ask me to submit previous years return if I do it now (during all the previous years my income has never been taxable)?
Thank you.
Hi Kumar
Yes, you need to file ITR which will serve you good.
Thanks. I checked with a local income tax lawyer who has been in the field for many years and he assured me that I don’t have to file ITR since monetary gift received from brother is not considered income.