Deconstruction of New Gifting Tax Law

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Indian Gift Taxing –

Gifting is always practiced in India on various special events to make it even more noteworthy. But, are you aware that gifting can also be exorbitant as it can also lead you to pay tax in India as per its rules and regulations? Forsooth, before diving deep into the gift taxing term, let us understand how actually gift is described in our Indian law first!

Income tax has provided a simple definition of gift which is simply stated as – ‘A gift can be in any form of demand drafts, cash, bank checks, or other valuables.’ Also, the person who is blessed with gifts is known as – ‘Donee’ while the person who actually gifts is known as – ‘Doner’.

(Definition Credit – https://www.e-startupindia.com/learn/tax-on-gifts-in-india-exemption-criteria/amp/ )

If we go back to history, we discover that – in 1958, the Gift Tax Act was introduced by our Parliament of India on the receipt of the specific gift for the first time. A specific amount of more than 50,000/- rupees was subjected to the tax on gift with its respective receipt.

Moreover, the gift tax was no longer valid and were tax free in 1998, disregarding the value or nature of the gifts. But again, in 2004 – Income tax Act introduced new rules as an integral part of it which were again improvised in the year 2010 respectively.

To leave us more perplexed, in 2017 an amended law stated that the – ‘Any form of gift received by a group of people or an individual will be taxed to the receiver under the title – ‘Income from Other Sources’.’

In India, while filing the Income Tax Return – You need to pay tax on the received gifts. Some of the examples are listed below in which paying tax on gifts is mandatory.

Portable Possessions like – Share Bonds, jewellery, art things like – paintings, sculptures are taxable.
On the other hand the Non-Portable Possessions like – Commercial or residential properties, land, residential structures are also taxable.

While on the other hand, you are just lucky as some of the gifts are totally exempted from tax paying. Below are some listing of the same from our Indian Heritage.

If you receive gifts on the occasion of your marriage, birthday or an engagement ceremony – you can simply enjoy them tax free, even if contains exotic jewellery or property itself!
If you get your share legally in form of property or in cash from your inheritance, you don’t have to pay tax either – as you are not paying anything to receive it.

If your close relatives like – parents, spouse, in-laws, siblings, bless you with any kind of presents – it’s non-taxable too.
If the Government, local authorities, charitable organizations or any recognized religious organization gifts you in form of property or money – even here, you are free from tax paying.

It is pivotal to know that – In India, tax is not subjected on all the gifts that we receive. In many cases, tax gets exempted like – In a Financial year, if you receive a cash gift of amount 50,000/- rupees, you naturally get gift tax exemption.

Moreover, before the financial year 2021-2022 ends, it is mandatory for the citizens residing in Maharashtra to conclude their transactions related to gifting.

Under the Act 2018, the second amendment of the Mumbai Municipal Corporation – the government of Maharashtra has imposed a one percent (1%) surcharge on gifts in addition to the existing registration and stamp duty charges.

However, the order dated 28th March 2020 – the surcharge was relinquished (waived off) for 2 years, by the government of Maharashtra because of the impact of the pandemic, i.e. Covid-19. As per the stated period of time, the waiver terminates on the 31^st of March, 2022, and hence, from the 1^st of April, 2022 – a 1% of surcharge will be levied on gifting in all the defined areas of the respective Brihan Mumbai Municipal Corporation.

Furthermore, the gifting of agricultural and residential possessions inclusive of internal transfers betwixt – daughter, son, wife, husband, wife of the late son, grand-daughter, grand-son, etc. gets affected considerably with respect to the gifting of the habitual family usual dealings as – the government imposes charges in addition to the costs of stamp duty which are relevant to the fixed properties in the respective areas as per this amendment.

(Source Credit – https://agamalaw.in/2022/02/22/why-maharasthra-residents-should-complete-their-gift-transactions-before-end-of-fy-2021-22/ )

Now, let’s have a bird’s eye view on different taxation criteria as proposed by the Income Tax of India. The table below showers light on all the taxing aspects that we need to follow in India.

Taxation Criteria –

The type of gift	When is Gift Tax applicable?	What is the taxable value of the gift?
Cash, bank draft, or bank transfer	Is the value of the gift exceeds Rupees 50000	The entire amount of money received as the gift
Any type of immovable property that includes property purchased at a price lower than the stamp duty value of the property	Is the stamp duty value of the gifted property exceeds the positive price by more than Rupees 50000	The difference in the amount between the stamp duty value and the purchased price of the gifted property is taxable.
All assets like jewellery, paintings, shares, bonds, sculptures (without making a payment)	Is the fair market value of the gifted item is more than Rupees 50000	The fair market value of the gift
Various assets like jewellery, paintings, bonds, sculptures bought by the donor before being gifted	If the fair market value of the item exceeds the purchasing price by more than Rupees 50000	The difference between the fair market value and the purchase price of the gift is taxable
An immovable item like land, buildings (without making any payment)	If the overall stamp duty value of the gift is more than Rupees 50000	Stamp duty value of the property as received as a gift