The Implication of Income tax on the Gift

Rajdeep Saini

28 Nov, 2020

India as a country follows the joint family structure system and has so many festivals to be celebrated owing to the diverse religions, customs and cultures. There are numbers of occasions in which the gifts are exchanged between the families. In fact, gifting each other signifies affection and love between the families and with that is also symbolized as the social status.

However, numerous of times gifts can also be an integral part of tax evasion/ tax planning. While tax evasion is prohibited and can attract penal provision, tax planning is completely legal and can be done under the framework of the law.

Earlier law regarding Tax on the gift in India

The government of India has introduced Gift Tax in April, which is regulated by the Gift Tax Act, 1958^[1] (GTA). The main aim of the government to implement this law is to impose a tax on receiving and giving gifts under various circumstances. All the gifts in a form of blank cheques, demand draft, cash, or anything are covered under the act. However, the gift tax was abolished in October 1998 and all tax on the gift was nil. Provided that the tax on the gift was reintroduced in a new form and also included in the provisions under the Income Tax Act in 2004.

It is very important to have a basic understanding of the taxation on gifts in India to dodge any unplanned/ ignorant tax outflows.

Present law regarding Tax on the gift.

As per the present law, which was amended in the year 2017, any gift received by any persons taxed in the hand of the receiver comes under the category of ‘Income from other sources’ at normal tax rates. There are a number of gifts that come under the ambit of taxation.

What is a Gift?

According to the income tax act, gift includes:

• Any money is given in cheque or cash;
• Any immovable property including building or land; or
• Any movable property including drawings, shares and jewellery.

Tax on the gift under the Income Tax Act

Cash as Gift

If the total value of the gift is less than Rs. 50,000 than nothing will be taxable. If value surpasses the limit of Rs. 50,000, the whole amount will be taxable

Movable property as Gift

• Without Consideration

In this case, where an individual receives, in any previous financial year, from any person, any property without any consideration, the total market price of which surpasses the 50,000 rupees, the whole market value of the property will be taxable by the receiver.

• For Inadequate Consideration

In this case, where an individual receives, in any previous financial year, from any person, any property for a consideration, the total market price of which surpasses the amount of Rs. 50,000/-, the whole market value of the property exceeds such consideration.

Immovable property as Gift

• Without Consideration

In this case, where an individual receives, in any previous financial year, from any person, any immovable property without consideration and the stamp duty surpasses Rs 50,000 then the value of stamp duty of such property will be taxable in the hands of the receiver.

• Inadequate Consideration

In this case, where an individual receives, in any previous financial year, from any person, any property for a consideration, the total value of stamp duty surpasses such consideration, if the amount of the excess is more than the higher of the following amounts:

• The total of 50,000; and
• The sum equal to 5 per cent of the consideration.

The surplus differential amount will be taxable in the hands of the receiver.

Exemption from the gift on the tax

If the gifts are received in the following conditions then it will be exempted:

In the situation where property or the sum of money received:

• From a relative, or
• On the celebration of the marriage of an individual
• By the way of inheritance or under the will
• In deliberation of death of the payer or donor
• From a local authority
• From any foundation or university or fund or other hospital or educational institution or any trust or other medical institution or institution referred to in clause (23C) of section 10.
• By or from any institution or trust registered under section 12A or section 12AAA.
• By any trust or fund or institution or any educational institution or other university or any hospital or other medical institution.
• From any person by a trust established or created exclusively for the advantage of the relative of the individual.
• Any reimbursement or other payment, due to or received by any individual, by whatever name called or in connection with the termination of his employment or the alteration of the terms and conditions relating thereto.

In the above mentioned points the relative mean:

• Any spouse of an individual.
• Sister and brother of an individual.
• Sister and brother of the spouse of an individual.
• Any lineal decedents or ascendants of the individual.
• Any lineal decedents or ascendants of the spouse of the individual.

Conclusion

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