Gift Tax in India – Rules and exemptions
Have you asked your friend to transfer Rs 60,000 to your bank account and have you settled offline through cash? Be careful, as income tax department may scrutinize and ask to pay income tax on the amounts received from your friend in your bank account. You should know the ground rules of Gift tax in India on how to deal them to prove that such transaction is already settled. Hence it is important to know about gift tax in India and its rules and exemptions. This article provides complete guide on Gift tax in India.
What is Gift Tax in India?
As per section 56(2) indicates any sum of money received exceeding Rs 50,000 without consideration (cash or kind) by individual or HUF is chargeable to tax as income from other sources subject to certain exclusions or exemptions. Such gift tax needs to be paid as per income tax slab applicable to individual.
Various gifts which fall under Gift tax in India
1) Cash Gift exceeding Rs 50,000:
Any amounts exceeding Rs 50,000 in a financial year without consideration is liable for gift tax in India. Please note that the amount indicated need not be single transaction. All multiple transactions from multiple people would be clubbed to get this amount in a financial year.
2) Gift in the form of Movable property
Any items like jewellery, drawings, and paintings, transfer of share or securities would fall under movable property. Any gift given in the form of movable property falls under gift tax. Market value would be considered as gift value and necessary tax is applicable if it crosses Rs 50,000 in a financial year.
3) Immovable property gift
If you have received land or property exceeding Rs 50,000, it would fall under gift tax.
– Without consideration – Full value of the property would be considered as gift.
– Part consideration – Full value of property minus the amounts paid by you to acquire such immovable property would become the gift value.
– Stamp duty value of the property would be considered to assess the value of the gift amount.
Exemptions / Exclusions for gift tax in India
1) Gifts to relatives are exempted
Gifts given to relatives are exempted from gift tax in India. The “relative” definition as per Income tax act includes Parents, Brothers, Sister, Spouse, Children, brother/sister of your spouse, brother/sister of your parents, lineal ascendant or descendant of your spouse and spouse of people referred above.
Any gift received from above people defined as “relative” is exempted from gift tax.
2) Gift up to Rs 50,000 is exempted in a financial year
Any amount paid to any one up to Rs 50,000 is exempted from gift tax in a financial year. If the gift amount exceeding Rs 50,000, entire amount is taxable and not additional/incremental amount.
3) Gift given on wedding is not taxable
Gift received during wedding from anyone is not taxable.
4) No tax on gift received either through WILL or inheritance
If you have received any amount by way of gift through WILL or inheritance, it would not be taxable under gift tax.
Frequently asked questions on Gift tax in India
1) Gift received by minor children or spouse is taxable?
Any gift received by minor child or gift received by spouse, the same IT rules would apply. If they are exempted with any of the points indicated above, it would be treated as exemption from gift tax, else the amount would be clubbed with your income and necessary income tax as per your income tax slab needs to be paid. This is as per “clubbing” rules of income tax.
2) During emergency I requested my friend to transfer Rs 60,000 to my bank account, will it attract gift tax?
If you have taken loan from your friend and you have a proof that you have returned that money through your bank account, you need not worry. But if you have paid offline through cash, it is better to document and take necessary signatures from your friend so that in case of any IT scrutiny, these documents would be handful. If you cannot prove, IT dept has every right to include this as taxable income and you need to pay tax. Also if you have taken the amount as loan and not repaid within same financial year through your bank account, it is better to have a document that you have taken loan so that you can prove this to IT dept.
3) I have made a FD in my spouse or child name, will it attract gift tax?
Since this falls under “Relative” category, no gift tax is payable. However, since your spouse or child do not have income, the interest on such bank FD needs to be added to your income and necessary tax needs to be paid. This is as per “clubbing” provisions.
4) I have received gift from non relatives for Rs 51,000, do I need to pay tax on Rs 1,000 (Rs 51,000 minus Rs 50,000 exemption)?
No. Once the amount crosses Rs 50,000, you need pay tax on total amount of Rs 51,000 and not incremental amount.
5) I have gifted the property to my wife and she sold after few years. Since she falls under “Relative”, she is not supposed to pay gift tax and even exempted from long term capital gain. Am I right?
From gift tax point of view, yes, she is falling under relative category, no gift tax is applicable. However, when she sold the property, any profits made would be clubbed with your income and necessary long term capital gain tax needs to be paid.
Conclusion: The above sample examples I have provided have become common in our regular life. Hence we need to be little careful in knowing what are the rules and regulations of Gift tax in India.
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Gift Tax in India – Rules and exemptions