In India we have festivities to celebrate all through the year and
exchange of gifts is a vital component of these celebrations. However,
it is important to understand that gifts are also used as mode of tax
planning.
A gift could be in cash or in kind. Let us see what are the most common forms of gifts and their
taxability.
Gifts in cash
Gift in the form of cash, as long as it does not cross Rs 50,000, would not be taxed. However, if the amount exceeds Rs 50,000, the entire amount received would be taxable. Further, this has to be offered as “Income from other sources” on which you pay taxes at rates applicable to the income slab you fall under. There are exceptions to this rule which have been discussed later in the article.
Gift in kind
A gift in kind could be an immovable asset like land or building, or a movable asset like jewellery, utensils, drawings, shares, etc.
Immovable asset
Any immovable property received as a gift would be taxed in your hands. The next step would be to determine the value that must be taxed. For this, the law prescribes something called the Stamp Duty Value (commonly referred to SDV) of the asset, which is nothing but the value of the property adopted by stamp valuation authorities for determining the stamp duty. So, if the SDV is more than Rs 50,000, the entire SDV is taxed. Else, the gift transaction remains tax free. Another scenario could be one where the asset has been gifted to you, against which you have made a payment, which is lower than the price the asset would have fetched in the market. Here, if the SDV exceeds what you paid by more than Rs 50,000, you will have to pay taxes on the difference between the SDV and payment made. Else, the gift remains tax free.
Here is an example to understand this:
If the SDV is Rs 2,00,000 and the payment made is Rs 100,000. SDV exceeds payment made by Rs 1,00,000. Since the difference between SDV and payment exceeds Rs 50,000, difference is taxable in taxpayer’s hands as “Income from other sources”.
In the above example, if the payment made was Rs 1,60,000, the difference between SDV and payment would be Rs 40,000, which is below 50,000 and, hence, no taxability would arise.
Movable asset received as a gift
When you receive movable assets, such as jewellery, utensils, etc, as gifts, their taxability depends on their Fair Market Value (FMV). If the FMV exceeds Rs 50,000, the FMV entirely is taxable as “Income from other sources”. If the FMV is lower than Rs 50,000, the gift is exempt in your hands. Similar to what was discussed in the case of an immovable property, if you have received any movable property for which you have paid a lower consideration than its market price and the FMV exceeds consideration by more than Rs 50,000, such difference would be taxed as “Income from other sources”.
Gifts that are tax free
The government has declared certain gifts exchanged during specified occasions or otherwise as fully exempt from tax.
Any gift received at the time of getting married, is fully exempt. This includes gift in cash or kind without any ceiling limit.
Anything received from another individual through a will or as inheritance from forefathers, is fully exempt from taxation.
Gifts received from immediate family is tax free. As per the Income Tax Act, certain relatives of an individual have been listed, whereby if an individual receives a gift from any of the listed relatives, the receipt will be fully exempt from tax. Such relatives include spouse, brother and sister of self and spouse, brother or sister of parents or parents-in-law, any lineal ascendant or descendant of self or spouse, spouse of any of the relatives mentioned here.
A gift could be in cash or in kind. Let us see what are the most common forms of gifts and their
taxability.
Gifts in cash
Gift in the form of cash, as long as it does not cross Rs 50,000, would not be taxed. However, if the amount exceeds Rs 50,000, the entire amount received would be taxable. Further, this has to be offered as “Income from other sources” on which you pay taxes at rates applicable to the income slab you fall under. There are exceptions to this rule which have been discussed later in the article.
Gift in kind
A gift in kind could be an immovable asset like land or building, or a movable asset like jewellery, utensils, drawings, shares, etc.
Immovable asset
Any immovable property received as a gift would be taxed in your hands. The next step would be to determine the value that must be taxed. For this, the law prescribes something called the Stamp Duty Value (commonly referred to SDV) of the asset, which is nothing but the value of the property adopted by stamp valuation authorities for determining the stamp duty. So, if the SDV is more than Rs 50,000, the entire SDV is taxed. Else, the gift transaction remains tax free. Another scenario could be one where the asset has been gifted to you, against which you have made a payment, which is lower than the price the asset would have fetched in the market. Here, if the SDV exceeds what you paid by more than Rs 50,000, you will have to pay taxes on the difference between the SDV and payment made. Else, the gift remains tax free.
Here is an example to understand this:
If the SDV is Rs 2,00,000 and the payment made is Rs 100,000. SDV exceeds payment made by Rs 1,00,000. Since the difference between SDV and payment exceeds Rs 50,000, difference is taxable in taxpayer’s hands as “Income from other sources”.
In the above example, if the payment made was Rs 1,60,000, the difference between SDV and payment would be Rs 40,000, which is below 50,000 and, hence, no taxability would arise.
Movable asset received as a gift
When you receive movable assets, such as jewellery, utensils, etc, as gifts, their taxability depends on their Fair Market Value (FMV). If the FMV exceeds Rs 50,000, the FMV entirely is taxable as “Income from other sources”. If the FMV is lower than Rs 50,000, the gift is exempt in your hands. Similar to what was discussed in the case of an immovable property, if you have received any movable property for which you have paid a lower consideration than its market price and the FMV exceeds consideration by more than Rs 50,000, such difference would be taxed as “Income from other sources”.
Gifts that are tax free
The government has declared certain gifts exchanged during specified occasions or otherwise as fully exempt from tax.
Any gift received at the time of getting married, is fully exempt. This includes gift in cash or kind without any ceiling limit.
Anything received from another individual through a will or as inheritance from forefathers, is fully exempt from taxation.
Gifts received from immediate family is tax free. As per the Income Tax Act, certain relatives of an individual have been listed, whereby if an individual receives a gift from any of the listed relatives, the receipt will be fully exempt from tax. Such relatives include spouse, brother and sister of self and spouse, brother or sister of parents or parents-in-law, any lineal ascendant or descendant of self or spouse, spouse of any of the relatives mentioned here.
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