India is a nation of close-sewn families and have a great deal of motivations to praise its diversified culture, customs and religion. Various events emerge where gifts are traded. As a matter of fact, gifting each other is a symbol of adoration and warmth and can likewise be an image of societal status.
Be that as it may, numerous times, gifts can likewise be a part of tax planning/tax avoidance. While tax planning inside the structure of law is admissible, tax avoidance is disallowed and can be penalized.
WHAT IS GIFT TAX?
Gift tax is an act introduced by the Parliament of India in 1958. It was introduced to impose tax on giving and receiving gifts under certain circumstances which is specified under the act. These gifts can be in any form including cash, jewelry, property, shares, vehicle, etc.
As per the Income tax act of 1961, if the value of the gift exceeds Rs.50,000 then the gift is taxed as income in the hands of the person who receives the gift under the head ‘Income from other sources’ at normal tax rates.
Income Tax on Gift received by an Individual or HUF is governed by provisions of Section 56(2)(x) of the Income Tax Act. As per the provisions of this Section, Gift Tax will not be levied under the subsequent 7 circumstances: –
1. Gifts received from Relatives:
Any gifts received from the ‘close’ relatives are exempted irrespective of the amount. Following people are covered under the definition of ‘close’ relatives:
- Spouse of the Individual
- Brother or Sister of the Individual
- Brother or Sister of the spouse of the Individual
- Brother or Sister of either of the parents of the Individual
- Any Linear ascendant or descendent of the Individual
- Any Linear ascendant or descendent of the spouse of the Individual
- Spouse of the person mentioned above
Ø In case of HUF, all members would be considered its relatives.
Ø However, despite the fact that the actual gift is exempted in the possession of the recipient, any income earned from the gift might be taxable under the provisions of Clubbing of the Income Tax Act.
2. If the aggregate value of gifts received is upto Rs. 50,000
If the aggregate value of gifts (whether in cash or in kind) received from a person or persons (except relatives as specified above) in any financial year does not exceed Rs. 50,000/-, then such gifts aren’t susceptible to Gift Tax.
However, if the value of gifts received exceeds Rs. 50,000/-, then the whole gift so received is taxable as Income from other sources
3. On the occasion of Marriage of the Individual
Gifts received from any person (whether relative or non-relative) on the occasion of marriage is exempt from tax (irrespective of amount). But note that gifts are exempted only on the occasion of own marriage, and not on the marriage of anyone among the family.
4. Gift Tax on Property received
* In case of Immovable Properties, the stamp duty value would be considered and in case of Movable Properties, the fair market value would be considered.
|KIND OF GIFT COVERED||MONETARY THRESHOLD||QUANTUM TAXABLE|
|Any immovable property such as land, building etc. without consideration||Stamp duty value* > Rs 50,000||Stamp duty value of the property|
|Any immovable property for inadequate consideration||Stamp duty value* exceeds consideration by > Rs 50,000||Stamp duty value Minus consideration|
|Any property (jewelry, shares, drawings etc.) other than immovable property without consideration||Fair market value *(FMV) > Rs 50,000||FMV of such property|
|Any property other than immovable property for a consideration||FMV exceeds consideration by > Rs 50,000||FMV Minus consideration (Same example in case of immovable property can be referred|
The meaning of Property in the above-mentioned table has been defined as: –
- Immovable Property being land or building or both
- Shares and Securities
- Archaeological Collections
- Any other work of Art
PROVISION RELATED TO STAMP DUTY:
To calculate gift taxes on immovable property or land stamp duty on gift deeds as on the date of agreement fixing is considered if the value of stamp duty exceeds 50,000. It is done to avoid higher stamp duty because of the time gap between the agreement date and date of registration within the following scenarios:
- Date of agreement and the date of registration is different.
- If the consideration is paid either wholly or partly through any modes such as cheque, bank draft or electronic mode before the date of agreement for transfer.
Also, in case of disputes in the calculation of stamp duty, the stamp duty valuation authority calls for records and passes an order in writing of value as per Section 500 and lower of the stamp duty value or value arrived by Valuation officer (VO) is considered.
5. Gifts received under a Will or by way of Inheritance or in contemplation of Death of the payer
Any amount received under a will or via legacy or in contemplation of death of the payer is completely exempt in the possession of the recipient. There is no maximum cap in this case and the whole amount in cash/kind, received as gift is considered as tax free.
6. Gifts received from any Local Authority as defined in Section 10(20) are completely exempt.
7. Gifts received from any Fund or Foundation or University or other Education Institution or Hospital or other Medical Institution or any other Trust or institution referred to in Section 10(23C) or Gifts received from any fund or Institution registered under Section 12AA are also exempt, irrespective of value.