Don’t pay tax on gifts if they are from family. Here’s the rule

Gifting is a good way to express love and affection to your friends, relatives and well-wishers. But the receiver of such gifts should be mindful of how such rewards are taxed in their hands.

While gifts from relatives are not taxed, any gift exceeding ₹50000 in value from non-relatives is added to your income and taxed according to your existing IT (Income Tax) slab.

Incidentally, gifts received during marriage are fully exempt from taxes, irrespective of the person from whom you get them. Here is a guide on how gifts are taxed.

Gifts from relatives are not taxed

Monetary gift received by an ‘Individual’ or HUF (Hindu Undivided Family) will not be taxed in the following cases.

Money received from relatives

Relative for this purpose means: In case of an ‘Individual’

1. Spouse of the individual
2. Brother or sister of the individual
3. Brother or sister of the spouse of the individual
4. Brother or sister of either of the parents of the individual
5. Any lineal ascendant or descendant of the individual
6. Any lineal ascendant or descendant of the spouse of the individual
7. Spouse of the persons referred to in (b) to (f)

Gifts from marriage

“Gift received on the occasion of the marriage of the individual is not charged to tax. Apart from marriage, there is no other occasion when a monetary gift received by an individual is not charged to tax. Hence, monetary gifts received on occasions like birthdays, anniversaries, etc., will be charged to tax,” according to CBDT (Central Board of Direct Taxes).

Tax treatment of immovable property

A gift of immovable property will not be taxed if it is received from relatives. The term ‘relatives’ includes the persons who have been listed above. A friend is not a relative as defined in the above list, and hence, gifts received from friends will be taxed (if other criteria of taxing gifts are satisfied). Gift of any immovable property made by non-relatives will be taxed irrespective of whether the property is located in India or abroad.

If the following conditions are satisfied, then immovable property received without consideration by an individual or HUF will be taxed.

• Immovable property, being land or building or both, is received by an individual/HUF.
• The immovable property is a capital asset within the meaning of section 2(14) for such an individual or HUF.
• The stamp duty value of such immovable property received without consideration exceeds ₹50000.

Tax treatment of movable property

Movable property received from relatives will not be taxed. But if movable property is gifted by non-relatives and if the aggregate fair market value of such property received by the taxpayer during the year exceeds ₹50000, it will be taxed.

“In the above case, the fair market value of the prescribed movable property will be treated as income of the receiver. Prescribed movable property means shares/securities, jewellery, archaeological collections, drawings, paintings, sculptures or any work of art and bullion, being a capital asset of the taxpayer and includes Virtual Digital Asset (VDA),” CBDT said.

“Considering the above definition, nothing will be charged to tax in respect of a gift of any item being a movable property other than covered in the above definition, e.g., Nothing will be charged to tax in respect of a television set received as a gift, because a television set is not covered in the definition of prescribed movable property,” it said.

Tax treatment for HUFs

The tax treatment for gifts received by HUFs has also been clearly defined. In case of HUF, any member thereof, the following will not be taxed:

• Money received on the occasion of the marriage of the individual (belonging to the HUF).
• Money received under will/ by way of inheritance.
• Money received in contemplation of the death of the payer or donor.
• Money received from a local authority [as defined in Explanation to Section 10(20) of the IT Act].
• Money received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C). [w.e.f. AY 2023-24, this exemption is not available if a sum of money is received by a specified person referred to in Section 13(3)].
• Money received from or by a trust or institution registered under Section 12AA or Section 12AB [w.e.f. AY 2023-24, this exemption is not available if a sum of money is received by a specified person referred to in Section 13(3)].
• Money received as a consequence of the demerger or amalgamation of a company or the business reorganisation of a co-operative bank under Section 47.
• Money received by any fund /trust/university/other educational institutions/hospital/other medical institution referred to Section 10(23C)(iv)/(v)/(vi)/(via)(Applicable if property is received on or after 1st April 2017)
• Money received from an individual by a trust created or established solely for the benefit of a relative of the individual.

Allirajan M is a journalist with over two decades of experience. He has worked with several leading media organisations in the country and has been writing on mutual funds for nearly 16 years.