If a person receives Gifts (either in cash or in kind) from any person, gift tax would be liable to be paid by the person receiving the gifts. Such income would be taxable in the year in which the gift is being received and taxable under head income from other sources. After adding this to income under head other sources, the gross total income would be computed and the tax would be levied on the gross total income as per the income tax slab rates.
- Recommended Read: Income Tax Slab Rates
Exemption from levy of Income Tax on Gift
Income Tax on Gift received by an Individual or HUF is governed by provisions of Section 56(ii) of the Income Tax Act. As per the provisions of this Section, Gift Tax will not be levied under the following 7 circumstances:-
1. Gifts received from Relatives
Gift received from Relatives is fully exempted from the levy of tax and no income tax would be levied on such Gifts. To remove any confusion regarding the classification of Relatives, the Income Tax Act has very clearly laid down that in case of Individuals, only the following would be treated as relative for the purpose of claiming exemption from payment of Gift Tax:-
- 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
In case of HUF, all members would be considered its relatives.
There is no maximum limit on the value of gifts received to be exempted from Gift Tax. All gifts received from relatives (irrespective of value) are exempted from the levy of Gift Tax.
2. If the aggregate value of gifts received is less than 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 are not liable to Gift Tax. However, if the value of gifts received exceeds Rs. 50,000/-, then the entire gift so received is taxable as Income from other sources.
For eg: Mr. A receives gift from Mr. B worth Rs. 30,000 and from Mr C worth Rs. 10,000. In this case, no tax would be levied as the aggregate value of gifts received is less than Rs. 50,000.
However, in case the value of gifts received by Mr A from Mr. B was Rs. 40,000 and from Mr. C worth Rs. 20,000, income tax on such gifts would be liable to be paid as the aggregate value exceeds Rs. 50,000. In such a case, gift tax would be levied on the aggregate figure i.e. Rs. 60,000.
3. On the occasion of Marriage of the Individual
Gifts received by an individual on his own marriage are fully exempted from the levy of Gift Tax. It has also been clarified that the gifts received by a person on his own marriage are exempted and not on the marriage of their son/daughter/brother/sister.
4. Gift Tax on Property received
Finance Act 2009, brought in an amendment to Section 56 and after this amendment gifts received of a value more than Rs. 50000 would now also be taxable. Before this amendment, the gifts received in kind were not taxable but now, they have also been brought under the ambit of taxation.
Gift Tax on Assets received in kind would be levied in the following manner:-
- In case the property is received without any consideration being paid by the person receiving the gift, the stamp duty value/fair market value of the property would be taxable (provided the stamp duty value exceeds Rs. 50,000)
- In case part consideration is being paid by the person receiving the gift, and the difference between the part payment made and the stamp duty value/fair market value is more than Rs. 50,000/-, such difference would be taxable. (Recommended Read: Tax on Property Transactions registered below Circle Rate)
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.
The meaning of Property has also been defined and Property means:-
- Immovable Property being land or Building or both
- Shares and Securities
- Archaeological Collections
- Any other work of Art
Tax on Property received as Gift would only be levied in case of the above mentioned properties. Thus, in case any property is not listed above, tax on those properties received as gift would not be levied. Examples of such properties on which gift tax would not be levied are Cars, Laptops, and Mobiles etc.
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 by way of inheritance or in contemplation of death of the payer is fully exempted in the hands of the person receiving the gift. There is no maximum limit in this case and the whole gift received is considered as tax free.
6. Gifts received from any Local Authority as defined in Section 10(20)
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
Capital Gains on Assets received/transferred as Gifts
In the hands of the person giving the gift
If a person gives gift to another, then such gift would not be regarded as transfer and therefore no capital gains would arise in the hands of the transferor i.e. the person who is giving the gift. And therefore, at the time of giving the gift, no tax would be required to be paid by the person giving the gift.
In the hands of the person receiving the gift
- The Cost of acquisition in the hands of the person receiving the gift would be the same as the cost of acquisition in the hands of the person who gave the gift.
- For the computation of period of holding, the period of holding in the hands of the person giving the gift would also be included.