Tax implications on Gifts in India:
Gifts are something that everyone would love to receive, if you are that lucky person who keeps receiving gifts, then it would be prudent to understand the tax implications of the same. This post will help you understand the tax implications on the gifts received by an Individual/Hindu Undivided Family (HUF).
For the taxation purpose, gifts are classified into five categories as illustrated below:
a. Tax implication on any sum of money received without consideration by an Individual/HUF (Monetary Gift)
Any monetary gift received by an Individual/HUF without consideration (monetary gift may be received in the form of cash, cheque, draft, etc.) will be charged to tax if the below conditions are satisfied:
• Sum of money is received without consideration
• The aggregate sum of the money received as gift exceeds Rs. 50,000 during the year
Conditions in which the monetary gifts received by an Individual/HUF is not chargeable to tax:
Listed below are the cases where the monetary gift received by an Individual/HUF is not chargeable to tax:
i. Money received from relatives: Relatives for the exemption purpose include the following:
1) In case of an Individual:
a) Spouse
b) Brother or sister
c) Brother or sister of the spouse
d) Any lineal descendant or ascendant of the Individual
e) Brother or sister of either of the parents
f) Any lineal descendant or ascendant of the spouse of t he Individual
g) Spouse of the persons referred to in b) to f)
2) In case of HUF, any member thereof.
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ii. Money received on marriage occasion of the Individual: Any monetary gift received by an Individual is not chargeable to tax on the occasion of marriage. On the other hand, monetary gifts received by an Individual on the occasions such as anniversary, birthday, etc. without consideration are chargeable to tax.
iii. Money received in contemplation of death of the payer or donor.
iv. Money received from any fund, university, foundation, other educational institution, hospital/other medical institution or any institution/trust referred to in section 10(23C).
v. Money received under will/way of inheritance.
vi. Money received from a trust or institution registered under section 12AA.
vii. Money received from a local authority [as explained in section 10(20) of the Income-tax Act].
viii Share received as consequences of demerger or amalgamation of a company under clause (vid) or clause (vii) of section 47, respectively.
ix. Share received as a consequence of business reorganisation of a co-operative bank under section 47(vicb).
Taxation on monetary gifts received from “Friend/s”:
Friend/s does not come under the definition of relatives according to the list mentioned above. Hence, any monetary gifts received from friend/s are chargeable to tax if the below conditions hold true:
• Sum of money is received without consideration
• The aggregate sum of the money received as gift exceeds Rs. 50,000 during the year
Taxation on monetary gifts received from abroad:
If the total value of the monetary gifts received by an Individual/HUF during a year crosses Rs. 50,000 and do not fall under the exceptions mentioned above, the gifts received from India as well as abroad are chargeable to tax.
Example 1:
Mr. Ramesh received the following gifts during the FY 2014-2015:
• Rs. 1,50,000 from his friend residing in Australia
• Rs. 30,000 from his elder Sister residing in Mumbai
• Rs. 65,000 on his birthday from his friend residing in Kolkata
The tax implication on the above gifts is illustrated below:
Example 2:
Mr. Amit received the following gifts from his friend during the FY 2015-16:
• Rs. 20,000 on his birthday i.e. Aug 12, 2014
• Rs. 15,000 on Feb 02, 2015
In this case, although Mr. Amit received the gifts from a friend with Rs. 20,00 received on his birthday, the aggregate amount received i.e. Rs. 35,000 during the FY is less than the threshold limit of Rs. 50,000. Hence, Mr. Amit does not have to pay any tax on the amount received.
b. Tax implication on the Immovable property received without consideration as a gift by an Individual/ HUF (Gift of Immovable property)
Immovable property received without consideration is chargeable to tax in the hands of an Individual/HUF if the below three conditions are met:
• The immovable property is a capital asset as described in section 2(14) for such an Individual/HUF
• Immovable property, being building or land, or both, is received by an Individual/HUF
• The stamp duty value of such immovable property received without consideration exceeds Rs. 50,000
Conditions in which the immovable property received by an Individual/HUF without consideration is not chargeable to tax:
Conditions remain the same as mentioned above for monetary gifts received by an Individual/HUF except for point (viii) & (ix).
Taxation on immovable property received as a gift from “Friend/s”:
Friend/s are not covered in the definition of relatives. Hence, gifts received from friends will be chargeable to tax if the above three conditions stated above are met.
Tax Implication on the immovable property located abroad:
If the above three conditions are met, the immovable property received as a gift is chargeable to tax irrespective of the location (India or abroad).
Example 1:
Mr. Ramesh received a flat as a gift from his friend and t he stamp duty on the flat was Rs. 75,000.
In this scenario, if all the three conditions mentioned above for taxability of the immovable property are met, then the entire stamp duty value i.e. Rs. 75,000 is chargeable to tax.
Example 2:
Mr. Amit received a house as a gift from his friend. The market value of the house is Rs. 7,50,000 and the value of the house for charging stamp duty is evaluated to Rs. 8,50,000.
In this scenario, the house is now a capital asset for Mr. Amit and he received it as a gift from a friend. Also, the stamp duty value of the property exceeds Rs. 50,000 and the property was not received on any specified occasions exempted from tax implication. Hence, the stamp duty value of the property i.e. Rs. 8,50,000 is chargeable to tax in the hands of Mr. Amit under the head “Income from other sources”.
c. Tax implication on the immovable property received at a reduced price i.e. for inadequate consideration (Immovable property received for a value less than its stamp duty)
Immovable property received for less than its stamp duty value is chargeable to tax in the hands of an Individual/HUF if the below conditions are met:
• The immovable property is a ‘capital asset’ within the meaning of section 2(14) of the Act for such Individual/HUF
• An Individual/HUF acquires any immovable property
• Such property is acquired for consideration but the consideration is less than the stamp duty value and the difference exceeds Rs. 50,000
Note: In this case, the stamp value exceeding the purchase price of the property will be considered as the income of the purchaser.
Conditions in which the immovable property received by an Individual/HUF for less than its stamp duty value is not chargeable to tax:
Conditions remain the same as stated above for monetary gifts received by an Individual/HUF except for point (viii) & (ix).
Also read: All you need to know about Gratuity & Its Tax Implications
Example:
Mr. Ramesh purchased a house from Mr. Amit on November 15, 2015, for Rs. 20,00,000 and the value of the stamp duty is Rs. 21,00,000.
Here, the house is a capital asset for Mr. Ramesh and was purchased for an amount less than its stamp duty value. As the difference between the purchase price and the stamp duty value exceeds the threshold value of Rs. 50,000, the excess amount i.e. Rs. 1,00,000 (Rs. 21,00,000 – Rs. 20,00,000) will be treated as the income in the hands of Mr. Ramesh and is chargeable to tax under the head “Income from other sources”.
On the contrary, if the house was purchased for Rs. 20,70,000 with stamp duty value be at Rs. 21,00,000. Mr. Ramesh does not have to pay any tax as the difference amount i.e. Rs. 30,000 does not exceed the threshold of Rs. 50,000.
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d. Tax implication on the Specified movable property received without consideration as a gift by an Individual/HUF (Gift of Movable property)
The value of prescribed movable property is chargeable to tax if the below conditions are met:
• Prescribed movable property is received without consideration as a gift
• The aggregate fair market value of such property received by the taxpayer during the year exceeds Rs. 50,000
Note: Here, the fair market value of the prescribed movable property will be treated as income of the receiver.
“Prescribed movable property includes jewellery, drawings, shares/securities, archaeological collections, paintings, sculptures or any work of art and bullion, being the capital asset of the taxpayer”.
Any other item being a movable property received as a gift not covered under the above definition of prescribed movable property is not chargeable to tax. For instance, a television set received as a gift is not chargeable to tax as it is not covered in the scope of prescribed movable property.
Note: Conditions for tax exemption remain same as described above.
Example:
Mr. Ramesh received the following gifts from his relatives/friends during the FY 2015-16:
• Shares with a fair market value of Rs. 2,50,000 from his Brother on the date of the gift
• Archaeological collections with a fair market value of Rs. 75,000 from his friend
• Jewellery with a fair market value of Rs. 2,25,000 from relatives and friends on his marriage
The tax implication on the above gifts is illustrated below:
e. Tax implication on the Specified movable property received at a reduced price i.e. for inadequate consideration (Movable property received for less than its fair market value)
The value of prescribed movable property is chargeable to tax if the below conditions are met:
• An Individual/HUF acquires prescribed movable property
• The summation of the fair market value of such properties exceeds the consideration paid for these properties by Rs. 50,000 during the year. In other words, the aggregate fair market value of all such properties is more than the consideration paid and the difference is greater than Rs. 50,000
Note: Conditions for tax exemption remain same as described above.
Also read: All you need to know about Leave Encashment and its Tax Implications
Example:
Mr. Amit purchased the following capital assets during the FY 2015-16:
• Shares of Rs. 1,50,000 with the fair market value of shares being Rs. 2,25,000
• Drawings and paintings for Rs. 1,00,000 with the fair market value being Rs. 1,25,000
• Car for Rs. 2,50,000 with the fair market value of the car being Rs. 4,00,000
Shares, drawings and paintings are covered under the definition of prescribed movable property. In the above example, all the three properties are purchased below the fair market value. The aggregate excess amount of fair market value over the purchase price is Rs. 1,00,000 (Rs. 75,000 for shares and Rs. 25,000 in case of drawings and paintings) which is well above the threshold of Rs. 50,000. Hence, the entire amount i.e. Rs. 1,00,000 is chargeable to tax in the hands of Mr. Amit under the head “Income from other sources”.
In case of the car, nothing is taxable as it does not fall under the definition of prescribed movable property.
Also read: A Guide to understanding your Salary and its Tax Implications
