We all receive gifts, sometimes it is in the form of money from our beloved ones. A common cause of worry and concern is the tax implications on receiving gifts
- Use gifting for tax efficient transfer of money with family members
- There are instances when a gift is tax free, but it could later on become a taxable item, in case of a house received as gift, which is later let out – the rent received is taxable
- Gift up to Rs 50,000 a year is not assessed to any tax irrespective of who gifts the money
Gifting among friends and family is a very Indian way. There are several occasions when such gifting is common practice – Raksha Bandhan for instance. Likewise, parents gift their children on practically every occasion, especially during marriage. Grandchildren are the recipients of loads of gifts from grandparents. We often hear of cars being gifted and homes being given to family members. So, it is not a surprise when several among those who receive gifts wish to know if the gift that they receive is taxable or tax free. There are instances when a gift is tax free, but it could later on become a taxable item.
So, what is a gift? A gift could be money or house, shares and jewellery or any such high value item which is received without any consideration, or simply an asset received without making a payment against it and is a capital asset for the recipient. It can be in the form of cash, movable property or immovable property. A capital asset typically refers to anything the individual owns for personal or investment purposes. The person who is giving a gift is known as the ‘Donor‘ and the person who received the gift is known as ‘Donee‘.
According to the Income Tax Act, 1961 if the value of gifts received is more than Rs 50,000 a year, then such amount is taxed as income in the hands of the receiver. These gifts may be in any form – cash, jewellery, movable and immovable property or even shares. Gifts up to Rs 50,000 a year will not require a recipient to be assessed for any tax irrespective of who gifts the money.
You need to add the total value of all the gifts received in a financial year and if the total value is less than Rs 50,000 then it is exempted from income tax. You could receive gifts from relatives and non-relatives or non family. If you receive a gift from an individual who is not a relative then the value of the gift can be subject to income tax.
Gifts from Relatives
List of ‘Relatives’ from whom you can receive gift(s) and there is no need to pay any income tax; (you can receive unlimited monetary or non-monetary gifts).
Spouse (Your wife / Your husband, if married)
Spouse’s Brother’s wife
Spouse’s Sister’s husband
Spouse’s Grand Father
Spouse’s Grand Mother
Spouse’s Great Grand Father
Spouse’s Great Grand Mother
Mother’s Brother’s Wife
Mother’s Sister’s Husband
Father’s Brother’s Wife
Father’s Sister’s Husband
Great Grand Father
Great Grand Mother
Grand Son’s Wife
Grand Daughter’s Husband
Also, the gifts can be exempt even if they aren’t received from these relatives, if they are received during your marriage. So, if you receive a car or something like that at the time of your wedding from a distant relative, do not worry about what the tax authorities would do to treat it for taxation. There will be no tax on such a gift, if you ensure that the date mentioned on the gift deed is of your marriage day or at least close to that date. Likewise, if you get a property through a registered gift deed (wherein your PAN is quoted), you can show the value of the gift received as ‘Exempted Income’ in ITR. This is to avoid any scrutiny by income tax authorities in the future. Also, whenever you receive any gift it is prudent to have gift deed executed.
Just like marriages, there is no tax implication of gifts received as a result of inheritance. If the gifts come to you by way of a will then you aren’t supposed to pay any tax on the amount. But the income generated later, say by way of rent on a house inherited by you would be taxable. However, if the amount of gifts received on occasions other than the above and from a person who isn’t a relative as specified exceeds Rs 50,000, then the entire amount would be added to your income. So, don’t make the mistake of adding just Rs 10,000 to your income, if a friend gifts you Rs 60,000 for helping him at some point in time.
Likewise, any gift received by an employee from his employer is a perquisite. Perquisites are nothing but a benefit that an employee receives from his employer other than salary or wages due to the office or position he holds as a result of his employment. So during a Financial Year, aggregate value of all the gifts or vouchers received by the employee if found to be equal or less than Rs 5,000 then it is exempt from tax.
The following list of gifts are fully exempted from Tax whether they are received as Cash, or any other form:
- Gift received under a Will or by way of inheritance
- Gift in contemplation of death of the donor
- Gift from any local authority
- Gift from any fund or foundation or university or other educational institution or hospital or any trust or any institution referred to in Section 10 (23C)
- Gift from any trust or institution, which is registered as a public charitable trust or institution under Section 12AA
- Any sum received from relatives or gifts received from anyone on occasion of marriage, is not to be included under the head ‘Income from Other Sources’ while filing your taxes. There is no requirement to show these gifts in ITRs as it does not fall under the definition of Income chargeable to tax.
If you receive gift (cash/movable/immovable property) from non-family member which is above Rs 50,000 then you can show it under the head ‘income from other sources’. You have to pay taxes as per your income tax slab rate. Make sure that the rules of clubbing of income come into picture if you gift a certain amount to your spouse, or minor children or Son’s wife. Any income earned by the recipient on the gift shall be clubbed with the income of donor; that is you.