Income Tax Implication on Gifts In India

Gifts Tax in India

Have you received any gift recently and wondering if you have to pay any tax on it? He is a blog post that explains the tax implications of gifts received by anyone in India as per the Income Tax Act 1961. First let’s start with defining the term ‘gift’. Gift can be any asset like cash, movable and immovable properties like land, house, car, shares, jewellery, drawings, paintings etc., which are paid by the donor to the recipient without any consideration. In India or in any part of the world for that matter, gifting is very common during birthdays, weddings, festivals and on other important occasions. The other important way through which gifts are received are through inheritance by way of written will etc., from parents or relatives.

Tax Implications:
1. In India, as per Income Tax Act, 1961 if you receive any sum of money, the aggregate value of which exceeds ₹ 50,000 in a year, you need not pay any income tax on it. Here please keep in mind that, the word aggregate has been stressed. It means that only the aggregate amount of gifts are taken into consideration which means that if you have received ₹ 40,000 from Mr.X and ₹ 30,000 from Mr.Y, you would still need to pay tax on ₹ 70,000 !

To be taxed:
You will only have to pay tax if the aggregate amount of money received during a year exceeds Rs.50,000/- or in case you received an immovable property (like land, house or building) the stamp duty value of which exceeds Rs.50,000/-, the stamp duty value will be charged to tax. In case of movable properties like vehicles, shares etc., the aggregate fair market value of which exceeds Rs.50,000/-, the whole of the aggregate fair market value of movable property or properties will be charged to tax.

2. Gifts received during the time of wedding are completely exempted from tax. You are not required to show them during the filing of income tax return. However, it is always suggested that you keep a record of persons from whom you received such gifts. Should the Income Tax Department raises any query, you should be in a position to explain the sources. Please note that marriage gift may be received from relatives, friends or any other person, which means there is no barring on whom you should receive only in the case of marriage. Also do note that this exemption only applies to gifts that are received during marriage. Any gifts that you received during other occasions like birthday, anniversaries, engament etc., are FULLY TAXABLE.

3. Any gift(s) received by way of will or inheritance are not taxed in India.

4. Gifts received from Local Authority, or from university / other educational institution / hospital / trust registered u/s.12AA etc., are not taxable. Example: Scholarship received from university is not taxable.

Exemptions:

Gifts received from certain relatives are considered tax free in India. The relative as per the Income Tax Act, 1961 can be anyone of the following:

Assessee Relative
Individual a) Spouse of the individual
b) Brother or sister of the individual
c) Brother or sister of the spouse of the individual
d) Brother or sister of either of the parents of the individual
e) Any lineal ascendant or descendant of the individual
f)  Any lineal ascendant or descendant of the spouse of the individual
g) Spouse of the person referred to in the above clauses (b) to (f).
HUF Any member of the HUF

The above table should ideally clear all your queries as to who will qualify as relative to receive gifts that do not attract any tax liability in India. To make things simple, we have made a following graphic image:

Gifts not taxable in India

The above graphic representation represents the various sources from which you can receive tax-free gifts in India. Basically it covers all the relatives that are mentioned in the table above. You can receive gifts from any of the above relatives without having to worry about paying income tax.

It would be in the best interest of you, if you could register any gift that you receive through a gift deed so that it can be used to substantiate any query from Income Tax Department. Stamp duty also needs to be paid in case of any immovable property being acquired through gift deed in India. Stamp duty charges vary from state to state in India.

Question: I have received gift money from my spouse. I invested it in fixed deposit. I have earned interest on it. Will this interest income also be tax-free?

Answer: No, the no taxability rule to the gifts received from your spouse ends just there. Any income derived from this gift money will be charged to income tax in the hands of your spouse. This provision in the Income Tax Act is known as Clubbing of Income. We will be covering this in a detailed post later.

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