How Are Gifts Taxed?

Many people are unaware that certain gifts in India are treated as income under the Income Tax Act. That’s right! If the value of a gift that you received exceeds certain limits, it is taxable and considered under the ‘income from other sources’ category. However, several exemptions also apply when you receive gifts from certain individuals or during occasions like marriages. Meanwhile, gifts with a total value of ₹50,000 are also exempt from tax in India.

Now, let us walk you through how gift taxation works, the types of gifts that are taxable, the applicable thresholds, and the relevant exemptions that may apply.

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Gift Taxation in India

Section 56 of the Income Tax Act, 1961 suggests that gifts received by any person are taxed in the hands of the recipient. It comes under the category of “income from other sources” at normal tax rates. Let’s learn what kind of gifts are covered and how they are taxed.

Threshold Limits for Exemption and Taxability of Gifts

The provisions relating to gift tax are covered under Section 56(2) (vii) of the Income Tax Act, 1961. These provisions are briefly summarised in the table below:

Let’s understand the considerations through the following examples:

Key Insights:

• In Example 1, since the stamp duty value exceeds the consideration by more than ₹50,000, the difference of ₹1.25 lakh is taxable as income from other sources.
• In Example 2, the difference is only ₹40,000, which does not cross the ₹50,000 threshold. Hence, no amount is taxable.

What Are the Provisions Related to Stamp Duty in Gifting?

Provisions relating to the consideration of stamp duty value are similar to those under Section 50C. Let us briefly discuss the provisions for the purpose of gift tax below.

For gift tax, the stamp duty value as on the date of the agreement fixing the consideration needs to be considered if the following conditions are satisfied:

• The date of the agreement and the date of registration are different; and
• The consideration, either fully or in part, is paid by way of an account payee cheque, bank draft, or by using an electronic mode on or before the date of the agreement for transfer.

A tax officer must always refer the valuation of a stamp duty value to a Valuation Officer (VO) as per Section 50C. Then, the VO passes a written order stating the value determined. In gift taxes, the lower of the stamp duty value or the value determined by the VO is required to be adopted.

Meanwhile, a relaxation of up to 10% of such consideration is allowed for immovable property, where the stamp duty value of the property exceeds the consideration received. However, the excess amount is never categorised under income from other sources. 

Tip: Whenever gifts cross the threshold limit or become taxable, it is recommended to prepare a gift deed and maintain the document safely. This serves as proof of the source of gift income and can be used in response to tax notices.

Exemptions - Gift Taxation

Certain specified gifts received by any person from any person attract gift tax. However, there are some exceptions under the provisions of gift taxation, as outlined below.

Gifts Exempt on Specified Occasions

If you receive gifts on the following occasions, these are exempt from any taxes. 

• Marriages 
• By way of inheritance or will 
• In contemplation of any donor or payer’s demise
• Distribution of capital assets on the total or partial partition of an HUF

Gifts Exempt - Received from Specified Persons

Gifts received from the following specified persons are exempt:

Relatives, including:

• Spouse
• Brother or sister of the spouse or the individual
• Brother or sister of the parents or parents-in-law
• Any lineal ascendant or descendant of the individual or the spouse
• Spouse of any of the above relatives

Local authorities, such as: 

• Panchayat
• Municipality
• Municipal Committee
• District Board
• Cantonment Board
• Any fund, medical institution, trust,  foundation, university, educational institution, hospital, or institution referred to under Section 10(23C)
• Any charitable or religious trust registered under Section 12A or Section 12AA

Gifts Exempt - Received by Specified Institutions

Gifts received by the following institutions are exempt:

• Any fund, trust, hospital, institution, university, educational institution, or medical institution established for charitable, educational, religious,  or philanthropic purposes
• A trust working for the benefit of a relative of an individual, when received from the latter’s concern

Bottom Line

The Income Tax Act identifies various types of gifts for tax purposes. However, knowing them helps you reduce the taxable amount, especially when you know the values. Focusing on managing personal expenses is also an important part of maintaining financial health.