Gift Tax: Whether it is a wedding or a festival or a birthday celebration, it has been a tradition to give gifts on such occasions. However, after receiving the gift, it has to be reported to the Income Tax authorities as well and tax has to be paid on it under certain circumstances. Gifts are taxable as income under the head ‘Income from other sources’ and hiding the same can lead to problems. In such a situation, it would be better to know the rules related to it so that any kind of legal problems can be avoided. However, all gifts are not taxable and property or gifts received by way of marriage, inheritance, etc. are tax free.
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These are the rules regarding tax on gifts
- All monetary gifts are covered under the tax rules, but under the tax rules, the non-monetary gifts category includes land, buildings, shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures or any artefacts and gold and silver.
- A gift of more than Rs 50,000 in a financial year attracts tax liability on the recipient. It should be noted here that if the total value of all gifts received in a financial year exceeds Rs. 50 thousand, tax liability is created i.e. if a person has received two gifts of Rs. 21 thousand and Rs. 31 thousand then tax liability will be created because their total value is Rs. The value is 50 thousand rupees plus 52 thousand rupees. It should also be kept in mind here that tax will have to be paid on this entire amount, and not just Rs 2 thousand (Rs 52 thousand-50 thousand). This means that there is no tax liability on gifts up to Rs 50 thousand, but if gifts are received above this, tax will have to be paid on the entire amount.
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- If any non-monetary assets such as ‘immovable property or special movable property’ (land, buildings, shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures or any artefacts and gold and silver) are received as a gift, the immovable Tax is determined on stamp duty value in case of property and fair market value in other cases.
- If a gift is received without consideration and its stamp duty (in case of immovable property) or fair market value (in case of movable property) exceeds Rs.50,000, then this stamp duty value or fair market value But there will be a tax liability on the recipient of the gift. Without Consideration means such a gift which is purely a gift or donation and in return the recipient does not have to make any promise for payment in any form.
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- However, if a property is gifted in lieu of inadequate consideration, then in case of immovable property, if the stamp duty value exceeds the purchase price by more than Rs 50,000, then the gift recipient will have to pay tax on this difference.
- If any other specified movable property is received in lieu of inadequate consideration and if the fair market value exceeds the consideration price by more than Rs 50,000, then the difference will become taxable.
- There is no tax liability on gifts received by marriage or will or inheritance from a relative. Under the Income Tax rules, the category of relatives includes husband, wife, brother, sister, parents and descendants of the taxpayer and spouse.
- There is no tax liability on gifts received on the occasion of marriage whether from a relative or a non-relative.
- However, on occasions other than marriage, such as birthdays, anniversaries, etc., only gifts up to Rs 50,000 are eligible for tax exemption.
(Article: Shailesh Kumarhe, Partner, Nangia & Co LLP)