A Comprehensive Guide To Gift Taxes In India

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Gifting is one of the best ways to express your love and care towards someone, or value their hard work and efforts. It’s a custom to give gifts to your loved ones, employees, or anyone during occasions like – festivals, corporate programs, or weddings, especially in India. There are a lot of exciting gift and gift ideas floating around in the market, especially when the festival seasons are all set to line up across India.

In fact, wedding gifts have a huge potential since a lot of weddings take place in India throughout the year. But did you know these gifts can be taxable? Sounds strange? Yes! As per the ITA (Income Tax Act 1961) if the value of the gift exceeds ₹ 50,000 then gifts could be taxed as an income for the person who receives the gift.

Tax on gifts falls under the purview of ITA and gifts up to ₹ 50,000 per annum are exempt from taxes in India. Besides, gifts from certain relatives like parents, spouse, and siblings also fall under the gift tax exemption category. Gifts in other cases are taxable.

Our blog will help you learn everything about gifts and income tax applicable on gifts in India.

What Is A Gift?

As per ITA, money or movable & immovable property that an individual receives from another individual or company without paying for it is termed as a ‘Gift’.

Thus, from the taxation point of view, gifts could be classified as –

Monetary Gift ideas – Cash, Cheque, Draft, Bank Transfer, Money Transfer, etc

Movable Property – Share, Jewellery, Bonds, Art & Sculpture, Bike, Car, Mobile Phones, etc. It even includes properties received at less price than its market value.

Immovable Property – Building, land, residential or commercial property – shops, complex, malls, etc. It also includes immovable property being acquired at a lesser value than its stamp duty value.

Gifts That Are Tax-Free

Gifts or cash upto ₹50,000 in a financial year fall under the gift tax exemption bracket; however, if you receive gifts higher than these amounts, the entire gifting becomes taxable. For instance, if you receive ₹60,000 as a gift from your relative, the entire amount comes under the tax slab. It would be considered as an ‘Income from other sources’. The total value of all gifts is taken into consideration. Even if you receive ₹50,000 from one person and ₹20000 from another, it would still be considered surpassing the tax-free value. The entire gift value will be taxable in the receiver’s hands.
If you receive any property (movable or immovable) for inadequate consideration, the difference between the consideration and the stamp duty value will be considered a taxable gift. For instance, if you are given a flat worth ₹ 50 Lakh (according to circle rates/ready reckoner rates for stamp duty) and you pay only ₹ 30 Lakh, then the remaining ₹20 Lakhs will be considered as a taxable gift. If the difference between actual value and stamp duty is less than ₹50,000 the transfer is not considered a taxable gift.
Gifts from specific relatives are exempted, regardless of the amount received. These relatives are spouse, father, mother, brother and sister. They even include any lineal ascendant or descendant of the individual or his spouse as well as brother/sister of the spouse. However, note that even though the gift is exempted for the receiver, the income generated from the gift given by a relative will be taxable under the clubbing of ITA income provisions. For instance, if Suneel gifts ₹20 lakh to his sister, the same would not be added to her income. But, if Kavita creates an FD from the same and earns interest, the interest would be added to the income and it’s taxable.
Gifts given in contemplation of the receiver’s marriage
Gifts given in the contemplation of the death of the donor and gifts given under a will or inheritance
Property received from a local authority as defined under section 10(20) of the Income-tax Act
Property received from any fund, foundation, university, other educational institute, hospital or other medical institution, any trust or institution referred to in section 10(23C)
Property received from a trust or institution registered under section 12AA

What Are The Provisions For Gift Taxation in India?

Gift Type	Tax Value If < ₹50,000	Tax Applied To
Money	₹50,000	On Entire Amount
Land/Building (With no exchange)	Stamp Duty Value* > ₹50,000	Full Stamp Duty Value
Land/Building (sold below value)	Difference between Stamp Duty Value* and Sale Price > ₹50,000	Difference between values
Other valuables (jewellery, mobile phones, shares, etc.)	Fair Market Value** (FMV) > ₹50,000	Full FMV of the gift
Other valuables (sold below value)	FMV > Sale Price > ₹50,000	Difference between FMV and Sale Price

Ways To Declare Tax On Gifts

As per the ITA rules, gift taxation is a direct tax, therefore the recipient needs to declare it and make appropriate tax payments.

Receiver has to file ITR under the ‘Income from other sources’ tab. The taxable value of the gift becomes the income of the receiver for the particular or following financial year. The gift tax liability will be computed as per the income tax slab rate applicable to the receiver.

Tax On Gifts From Friends

Monetary and non gifts -monetary received from friends will come under gifts tax deductible bracket since friends are not ‘relatives’ for this purpose. It is worth to note that if the total amount of gifts received is > 50,000 then no tax is applicable.

Tax On Gifts From Relatives

Gifts, both monetary and non-monetary, received from relatives can be exempted from tax irrespective of their amount or value:

For instance, relatives who gift you can be:

Spouse of the individual
Sister/brother of the individual and their spouse
Sister/brother of the spouse of the individual
Sister/brother of either of the parents of the individual
Any lineal ascendant/descendent of the individual
Any lineal ascendant/descendent of the spouse of the individual or their spouse
In case of HUF or Hindu Undivided Family, any member thereof

Tax On Gifts Received In Marriage

Gifts that are received by the person on the occasion of marriage don’t fall under gifts tax deductible bracket. It is the only occasion when gifts, monetary or non-monetary, will not be taxed. Gifts received on occasions like anniversaries, birthdays, baby showers, family functions, etc. are subject to tax.

Taxes On Gifts Received By Company

Companies, or organizations, and trusts can give away assets without having capital gains tax, consider these actions as gifts. The budget proposal has changed this by stating that the gift tax exemption under section 47(iii) is not applicable to non-individual entities, like companies or organizations.

Tips To Save Your Gift Tax

Transfer To Family – Give funds to parents or spouse, as the income earned on such investments will be taxed at a low rate. Senior citizens have higher tax-exemption limits so you can make utmost use of it.
Dependent Relatives – If you have dependents such as parents, siblings or cousins with minimal to no income source, gifting them money for investments will prove beneficial. The income generated from such investments will not be clubbed under the tax bracket.
Pick Loan Over Gift – Consider a loan over gift if the recipient has the ability to repay. This way, you will be able to avoid any gifting money tax.
House Rent Allowance (HRA): If you’re living in a house owned by your parents, then start paying them rent. This way you can claim an HRA exemption and save money from taxes.

Also Read: The success journey of India’s premier gifts trade show: Giftex 2024

Things To Remember

Gift tax is calculated on the recipient’s income and not the giver’s income
The maximum tax-free amount of transfer is ₹50,000
‘Clubbing’ can help to prevent the misuse of gifting for tax evasions. Certain income from close relatives can be added to your income for tax purposes
All types of gifts such as gold, cash, real estate, artifacts, or any type of valuable items are taxable
Tax can be saved by gifting to your parents or parents in law or child. Your parents can generate tax-free income by investing the gifted funds in tax-free securities like PFF, tax-free bonds etc
Gifts of any amount received from or given to any relatives, such as, parents, spouse, your and your spouse’s brothers & sisters, brothers & sisters of your parents and your & your spouse’s lineal descendants are entirely tax-free
If you receive < ₹50,000, you should report it as “Income from Other Sources” on your income tax return
Give money to parents for medical expenditures, your parents can claim a tax deduction for the money spent on medical care