Since time immemorial, gifts have been looked upon as a symbol of love and affection. In fact, in some cases, they also signify social status.
Regardless, in many cases, gifts come handy for tax planning and avenues through which individuals can evade tax liability. While the role of gifts in tax planning is appreciated in more than one way, evading the same is strictly prohibited and draws a penalty. Consequently, to avoid such implications and make the most of tax planning, individuals should become aware of the aspects of tax on gifts in India.
The Indian government introduced the tax on gifts in April 1958, and the Gift Tax Act regulates it. The said Act was introduced to impose taxation on the exchange of gifts under requisite circumstances.
Essentially, gifts here represent anything in the form of cash, bank cheques, demand drafts, and other valuables. According to 2017’s amended law, any gift received by an individual or individuals is now taxed at the hand of the receiver as ‘Income from other sources. Notably, such gifts are taxed at regular rates.
Previously, the Gift Money Tax Act was eliminated in 1998; however, it was reintroduced again and included under the Income Tax Provisions in 2004.
This table below offers a glimpse of the gifts that come under the purview of gift tax in India 2022.
|Type of gift
|Money received without any consideration.
|Gifts worth more than Rs. 50,000.
|The entire amount in cash received as a gift.
|All immovable property assets like – land and building without any consideration.
|Stamp duty value that is more than Rs. 50,000.
|The stamp duty of the property.
|Immovable property with inadequate consideration.
|Stamp duty value is more than the consideration by Rs. 50,000.
|Stamp duty value without consideration.
|Gifts like valuable jewellery, shares, painting and other things that are not necessarily immovable property and without consideration.
|When the fair market value is more than Rs. 50,000.
|The fair market value of such property.
|Properties other than immovable assets for consideration.
|When the fair market value exceeds consideration by at least Rs. 50,000.
|The fair market value other than consideration.
Example: Suppose the stamp duty is Rs. 200000 and the consideration is Rs. 75000. In such a case, the taxable amount will be stamp duty minus the consideration value, i.e. Rs. 1.25 lakhs.
One must remember that there are certain exceptions in tax on gifts in India. To make the most of such a provision, one needs to find out more about it in detail.
The table below highlights gift tax rules in India.
|Category of recipient or Donee
|Category of Donor
|Occasion in Question
While there is no tax on gifts, income generated from some gifts given to relatives is taxable for the donee.
For instance, clubbing provisions or deemed owner in case of a housing property often comes under this purview, among others.
|While contemplating the death of the payer or donor.
|Trust that was created to extend benefits to relatives of the individual.
|Through a will or in case of an inheritance.
|Any trust, fund, institution, or foundation as mentioned in Section 10(23C).
|Local authorities like the Cantonment Board, Panchayat, Municipality, etc.
|Members of HUFs
|Hindu United Families
|Due to the distribution of capital assets arising from the partial or total partition of a HUF.
|Entities mentioned in Section 10(23C) (iv) (v) (vi) and (via).
|Religious or charitable trusts that are registered under 12A or section 12AA.
Nonetheless, it will come in handy if individuals become more adept with the exemptions of gift tax like – gift tax exemption relatives in India or occasion-specific taxation to streamline the same better. Having an idea about it may also prove useful and help them save on taxes within the provision of ITA.
Take a look at these pointers below to find out how one can save taxes through gifts.
As discussed, in a situation where the gift donor and receiver are not related to one another, the maximum amount they can transfer is Rs. 50000. Any amount beyond it makes the entire sum taxable as per the receiver’s tax slab.
However, you can save on taxes through clubbing. Regardless, one must note that tax benefits can be availed by gifting parents, children, or even parents-in-law. Ideally, when a gift is given to such individuals, the donor’s taxable income remains the same, but the interest the receivers accrue by investing the received gift money is treated as the receiver’s income.
So, such an income does not increase your tax burden or requires you to include it in your tax filings.
The fact that tax planning through gifts in India is rampant puts it directly under the scrutiny of the income tax department. It is especially bothersome when the quantum involved is quite substantial. Ideally, in such a situation, individuals who are involved with the give and take of expensive gifts are recommended to maintain proper documents to establish the genuineness of the receipt.
Subsequently, it will come in handy to justify the source of funds as and when required under the purview of tax on gifts in India.