Gift tax rules explained: Who can give you money or assets without tax implications?

Gifts received in the form of money, property, or assets are treated as income under the Income Tax Act. If the value of such gifts exceeds the prescribed threshold, they will be taxed under the head “income from other sources” in the hand of the recipient. The tax treatment depends on the value of the gift, the relationship between the donor and recipient, and the nature of the transaction.

Under existing income tax rules, gifts with a total value of up to ₹50,000 in a financial year are entirely exempt from tax, even if you received them from your friends. Meanwhile, certain exemptions are available for gifts received from specified relatives or during occasions such as marriage, where no taxes apply even if the amount exceeds the prescribed threshold.

As per Section 56 of the Income-tax Act,1961, gifts received by an individual are taxed under the head ‘Income from other sources’ at normal tax rates, given that they are received from a non-relative and exceeds the limit of ₹50,000. Here's a list of cases where gifts received by an individual are entirely exempt from tax, regardless of the amount:

Gifts received on specified occasions

Certain gifts received by an individual from another person or people may attract gift tax under the income tax rules. However, tax does not apply in some specified situations, irrespective of who gives the gift. These include:

• Gifts received on the occasion of an individual's marriage.
• Gifts received under a will or by way of inheritance.
• Gifts received in contemplation of death of donor or payer.
• Gifts received during the distribution of capital assets on total or partial partition of a Hindu Undivided Family (HUF), where the exemption applies only to HUF members.

Gifts received from specified people

Similar tax exemption also applies to gifts received from family members and certain people and authorities. These include:

• Gifts received from relative, such as spouse, brother and sister of self and spouse, brother or sister of parents or parents-in-law, any lineal ascendant or descendant of self or spouse and spouse of any of the relatives.
• Gifts received from local authorities such as Village Panchayat, Municipality, Municipal Committee and District Board, as well as Cantonment Board.
• Gifts received from any fund, foundation, university or other educational institutions, hospital or other medical institution. The exemption applies to any trust or institution referred to Section 10(23C).
• Gifts received from any charitable or religious trust registered under section 12A or section 12AA.
• Gifts received from a trust created or established solely for the benefit of relatives of the individual may also qualify for exemption, subject to conditions under the Income Tax Act.

How to declare tax on gifts in India

If a person has received gifts in a financial year from someone who does not fall within the list of specified relatives or exempt categories, then the gift may become taxable as per the current Income Tax rules. In such cases, the receiver is required to disclose the gift in their Income Tax Return (ITR) and make appropriate tax payments, if applicable.

The value of such gift must be declared while filing ITR under the head “Income from Other Sources”. The taxable value of the gift is added to the total income of the receiver for the relevant financial year. The tax liability on such gifts is then calculated according to the applicable income tax slab rates of the receiver.

Though gifts worth up to ₹50,000 is tax-exempt, if you receive gifts higher than this amount, the entire gift becomes taxable. For instance, if you receive ₹70,000 as a gift from a friend, then the entire amount of ₹75,000 would be added to your income and taxed at your applicable slab rate.