How are Gifts Taxed? - Gift Tax Exemption Relatives List

In India, gifting forms an integral part of the culture and heritage. These gifts can range from articles of nominal value to high-value gifts such as stocks, jewelry, property, etc. Income Tax did not apply on gifts until the year 2003-04. In 2004, gifts were also covered under the purview of the Income Tax Act. However, there are various provisions for the taxability of gifts in India. In this article, we will cover everything that you need to know about gift taxation, calculation, exemption, etc.

What is the Definition of Gift as per the Income Tax Act?
How are Gifts Taxed in India?
Gift Tax Exemption Relatives List
What are the Exemptions on Gift Tax?
How do you calculate the taxable value of a gift?
How do you declare a tax on gifts in India?

What is the Definition of Gift as per the Income Tax Act?

As per the Income Tax Act, any money, immovable/movable property received by an individual from another individual/organization without having to pay any consideration for it is termed as a “gift”. Talking about taxation, a gift can be classified in the following manner -

Money is received in cash, bank transfer, or cheque.
Movable property such as shares, bonds, jewelry, paintings, and sculptures, including movable properties received at reduced prices or prices less than fair market value.
Immovable property like residential land and buildings, commercial/residential property, and immovable properties acquired at a lesser price than its stamp value.

How are Gifts Taxed in India?

Any gift received from a relative as defined under the Income Tax Act is not taxable in the hands of the recipient, irrespective of the amount received, In other words, there is no limit on the amount of tax-free gifts you can receive from your relatives.

However, if any gift received from a person other than a relative exceeds the value of Rs.50,000 in a year, then the entire amount received as a gift is taxable.

For example, If a taxpayer receives a gift of Rs.40,000 from another person, then the entire amount will be exempt from tax. On the other hand, if the same person receives a gift worth Rs.60,000 during the year from another person, then the entire amount will be taxable at the applicable rates.

Gift Tax Exemption Relatives List

As mentioned above, gifts received from relatives are not taxable under the Income Tax Act. Below is a list of persons who are defined as relatives as per the Income Tax Act -

Spouse of the individual.
Individual’s Brother or sister
Brother or sister of the individual’s spouse.
Brother or sister of either of the individual’s parents.
Individual’s Lineal ascendant or descendant.
Lineal ascendant or descendant of the individual’s spouse.
Spouse of the persons referred to in (2) to (6).

Note: Gifts received from the members of a HUF are exempt from Tax.

What are the Exemptions on Gift Tax?

Cash or gifts received upto Rs.50,000 during a financial year are exempt from tax; however, in case of gifts of a value higher than this threshold, the entire amount is taxable in the hands of the recipient.

Gifts Exceeding Rs.50,000 - For example, if you receive gifts worth Rs.50,000 in a year, the entire amount will be exempt from tax. On the other hand, if you receive gifts worth more than Rs.50,000, let’s say, Rs.75,000, then the entire amount is taxable in the hands of the recipient at the given slab rate.
Property Received for Inadequate Consideration - In case you receive property for a higher price, then the difference between stamp duty and consideration is considered a taxable gift. For example, if you are gifted a flat worth Rs.50 lakh and you pay a consideration of Rs.30 lakhs, then the excess of Rs.20 lakhs will be considered a taxable gift. At the same time, if the difference lies within the threshold of Rs.50,000, then it does not attract income tax.
Gifts from Relatives - Gifts received from relatives as specified in the Income Tax Act. These relatives include mother, father, brother, sister and spouse. Even though the gift is exempt in the hands of the recipient, any income generated from the gift received from a relative might be taxable under the clubbing provisions of the Income Tax Act. For example, if a person receives Rs.5,00,000 as a gift from a relative, this amount will not be charged to the tax. However, if this amount is invested in an FD, then the returns on such FD will be subject to tax.
Gifts at Wedding - gifts received by a newly married couple from their immediate family members on the occasion of their marriage are exempt from tax. Wedding gifts can include cash, jewelry, house property, stock or gold. These gifts received from immediate family members are not subject to tax.
Gifts by way of Inheritance or Will - Gifts received by way of will or inheritance are exempt from tax as per the provisions of the Income Tax Act 1961.
Gift Received from Local Authority or Charitable Trust - Any money received from a local authority, charitable trust, fund, foundation, university, or any other local authority registered under section 12A is exempt from tax. Also, money received by a meritorious student from college/university or a patient under medical care is exempt from tax.

How do you calculate the taxable value of a gift?

Given below is a table that presents the information that you need to compute the taxable value of a gift -

Type of Gift	Gift Tax Applicability	Taxable Value Value of Gift
Cheque, cash, or bank transfer	If the value exceeds Rs. 50,000	The entire amount received as gift.
Immovable property, like buildings, land, etc., was received without making any payment.	If the stamp duty value exceeds Rs. 50,000	Stamp duty value of the property received as a gift
Immovable property that is bought for inadequate consideration	If the stamp duty of the immovable property received as a gift is more than the purchase price by Rs. 50,000 or more, then gift tax is applicable.	The difference between the stamp duty and the purchase price of gifted property is subject to tax. For instance, If the stamp duty is Rs. 35 Lakh and the purchase price is Rs. 20 Lakh, the taxable amount is Rs. 15 Lakh (Rs. 35 Lakh – Rs. 20 Lakh)
Assets like shares, jewelry, sculptures, paintings, etc., without paying any consideration.	If the fair market value of the gift is Rs. 50,000	The fair market value of the gift
Assets like shares, jewelry, paintings, sculptures, etc., for consideration (that is, purchased by the donor before being gifted)	In case the fair market value of the gift exceeds the purchase price by Rs. 50,000 or more.	The difference between the fair market value and the purchase price of the present is taxable. For instance, If the fair market value of jewelry given as a gift is Rs. 2 Lakh and the original purchase price is Rs. 1 Lakh. Then, the taxable amount is Rs. 1 Lakh (Rs. 2 Lakh – 1 Lakh)

How do you Declare Tax on Gifts in India?

Earlier, the payment of tax on gifts was the responsibility of the donor. However, as per the current Income Tax Rules, the donee, i.e., the receiver, is responsible for declaring the gifts received during the year and paying tax on them.

In order to calculate the tax payable, the donee has to declare the value of the gift while filing an Income Tax Return under the head “Income from other sources”. The value of the gift that is subject to tax forms a part of the donee’s total income and is subject to tax at the applicable tax rates.

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Having a proper understanding of gift taxation in India will not only help you provide accurate income tax declarations and stay compliant with income tax laws but also help you avoid notices. Huge amounts of gifts can sometimes attract scrutiny from the Income Tax Department. Have you received a notice from the income tax department and need help responding to it? Our Tax Experts are here to help you with everything related to taxes. Get Tax Consultancy Services and avoid notices.