BackAll you need to know about taxes on gifts and the exceptions
Experts suggest that giver must ensure that gift is genuine and there isn’t any black money and money laundering involved
PremiumIndia is a land of festivals and gifting is an integral part of our culture. However, with a simple gift comes a lot of compliance that people have to meet in terms of taxation. As per the government rules, any gift in form of cash, cheque, land, building or property is taxable in the hand of the receiver if it exceeds more than ₹50, 000 within a financial year.
However, there are certain notable exceptions that individuals need to keep in mind. We discuss the taxation rules on gifts and these exceptions in detail.
First of all, experts suggest that giver must ensure that gift is genuine and there isn’t any black money and money laundering involved. They also advise that higher valued gifts must be registered through a deed by paying certain duties, which differ from state to state. This is advised because if in future, a scrutiny comes from the tax authorities, an individual must be able to prove the genuineness of the transaction as a gift and not sale-purchase transaction.
In terms of tax compliance, a gift is not taxable in the hand of the giver, but if you are the receiver you need to keep in mind certain classifications. As mentioned above, gifts received by any person attract tax, however, there are some exceptions to this.
According to the government rules, certain close relatives such as husband/wife, son/daughter (including step child and adopted child), father/mother (including step-father/mother), daughter-in-law/son-in-law, brother-in-law (and his wife), sister-in-law (and her husband) are exempted from paying tax on receipt of gift. Step-brother/sister, nephew/niece and cousins are not deemed as ‘relatives’ for this provision.
However, in case of non-relatives, a receiver has to pay tax, if the value of the gift exceeds ₹50,000 within a year. However, there are certain exemptions to this rule as well.
“Gifts received from non-relatives on the occasion of marriage are exempt from tax. But note that only gifts given to the bride or groom are exempted. In case, the gift is given to the parents of the couple, then tax will be charged," said Naveen Wadhwa, deputy general manager, Taxmann.
Note that gifts given by non-relatives on other occasions such as birthdays and housewarming will attract tax if the value exceeds ₹50,000.
Further, in contemplation of death where the gift is given by someone at the death bed is exempted from tax in the hands of giver or receiver.
In terms of Indian residents, a receiver, if taxable, has to show the gifts in income tax return and pay tax as per the slab rate.
Note that gifts are classified as money, immovable property and movable property. All these classes have separate limits and are not cumulative.
“For example, if you receive ₹40,000 as money and ₹40,000 as property, there will be no tax liability. However, if you receive ₹51,000 as money, the whole amount will be taxed as per your slab rate," said Wadhwa.
Notably, under the movable property category that includes shares, bullion and art, the government has added virtual digital assets or crypto assets to the list from the next year.
For non-resident Indians (NRIs), the government had clarified that they have to pay taxes on gifts received under Section 56, which lays down rules for gifting taxation. Further, in terms of compliance, a resident gift-giver has to deduct tax at the rate of 30% while giving a gift to an NRI. The same exemptions apply to NRIs. For instance, if you send ₹55,000 to your NRI brother, you don’t have to deduct TDS and the receiver doesn’t have to pay tax in India as exclusion under the relative rule will get applied. However, while gifting to an NRI friend, you will have to deduct TDS and the friend has to pay tax.
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