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.
What is Gift Tax 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.
Provisions on Taxation on Gifts
This table below offers a glimpse of the gifts that come under the purview of gift tax in India 2022.
|Type of gift||Threshold||Taxable limit|
|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.
Taxation on Gifts – Exemption
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.
|Any individual||Individual||While contemplating the death of the payer or donor.|
|Trust that was created to extend benefits to relatives of the individual.||Individual||Not applicable.|
|Any individual||Any individual||Through a will or in case of an inheritance.|
|Individual||Any individual||Wedding ceremony|
|Any person||Any trust, fund, institution, or foundation as mentioned in Section 10(23C).||Not applicable|
|Any person||Local authorities like the Cantonment Board, Panchayat, Municipality, etc.||Not applicable|
|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).||Any individual||Not applicable|
|Any individual||Religious or charitable trusts that are registered under 12A or section 12AA.||Not applicable.|
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.
Tax Saving Through Gifts
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.
As per the government rules, any gift in form of cash, cheque, land, building or property is taxable in the hand of the receiver if it exceeds more than ₹50, 000 within a financial year.How is gift taxed in India? ›
As per the law, as it stands today which was amended in 2017, gifts received by any person by any person or persons are taxed in the hands of the recipient under the head 'Income from other sources' at normal tax rates.How much amount of gift is tax free in India? ›
Any form of gift which is valued less up to Rs. 50,000 can be allowed to be given tax free. Are there any occasions apart from marriage in which monetary gift received by an Individual will not be charged to tax? The only gift received by individual at the time of marriage is not charged to tax.How much money can an Indian citizen receive as a gift? ›
Gifts from "relatives", who are covered in the definition above, may not be taxable in India. However, gifts from friends or non "relatives" may be taxable if the aggregate value exceeds Rs 50,000 per financial year.How much gift from parents is tax free in India? ›
As long as the sum of all the gifts received during the year does not exceed the threshold of fifty thousand rupees it is fully exempt but whole of the amount becomes taxable once it crosses the threshold of fifty thousand.How do I avoid gift tax? ›
- Respect the gift tax limit. The best way to avoid paying the gift tax is to stay within the limit set by the IRS. ...
- Spread a gift out between years. ...
- Provide a gift directly for medical expenses. ...
- Provide a gift directly for education expenses. ...
- Leverage marriage in giving gifts.
In 2021, you can give up to $15,000 to someone in a year and generally not have to deal with the IRS about it. In 2022, this increases to $16,000. If you give more than $15,000 in cash or assets (for example, stocks, land, a new car) in a year to any one person, you need to file a gift tax return.How do you prove gift money? ›
- A copy of the gift giver's check or withdrawal slip and the homebuyer's deposit slip.
- A copy of the gift giver's check to the closing agent.
- A settlement statement showing receipt of the donor's monetary gift.
- Copy of certified check.
- Proof of wire transfer.
If you fail to file the gift tax return, you'll be assessed a gift tax penalty of 5 percent per month of the tax due, up to a limit of 25 percent. If your filing is more than 60 days late (including an extension), you'll face a minimum additional tax of at least $205 or 100 percent of the tax due, whichever is less.What is the maximum you can gift? ›
The first tax-free giving method is the annual gift tax exclusion. In 2021, the exclusion limit is $15,000 per recipient, and it rises to $16,000 in 2022. You can give up to $15,000 worth of money and property to any individual during the year without any estate or gift tax consequences.
Tax in USA: In USA, the gift giver (donor) pays tax. In the current case, the Indian parents are not US persons and are not liable for US tax. Accordingly, gift tax does not apply. As a US person, you are required to report any gift (or bequest) from a foreign person if it exceeds USD 100,000 in a year.How is gift tax calculated? ›
You can think of the gift tax the same way you would income taxes, where each chunk of money is taxed at the rate for the bracket it falls into. The first $10,000 in taxable gifts is taxed at 18%, the next $10,000 is taxed at 20%, the next $20,000 is taxed at 22%, and so on.Do I pay tax on gifted money? ›
You do not pay tax on a cash gift, but you may pay tax on any income that arises from the gift – for example bank interest. You are entitled to receive income in your own right no matter what age you are. You also have your own personal allowance to set against your taxable income and your own set of tax bands.How much money can be legally given to a family member as a gift in 2020? ›
For 2018, 2019, 2020 and 2021, the annual exclusion is $15,000. For 2022, the annual exclusion is $16,000.Is gift from mother to son taxable? ›
Gifts exempted from taxation
A parent gifting Rs 1 Lakh to his son or a plot to the daughter is tax free. But a gift of Rs 1 lakh received from a friend or colleague, is taxable. In short, the gift received from friends or anyone other than the specified relatives are taxable.
Gift (i.e. immovable property received without consideration) received only on the occasion of marriage of the individual is not charged to tax. Apart from marriage there is no other occasion when gift received by an individual is not chargeable to tax.