Understanding Gift Tax in India: A Comprehensive Guide

Overview : Gifting has been an indispensable part of Indian and few other cultures since ages. However, in India, gifting is deeply embedded in our social and familial traditions, holding a significant value. On various festivals and occasions like diwali, and weddings, the exchange of gifts help express love, gratitude and value towards the recipients and thus it also strengthens the bond between two persons, communities and religions.

Many Indians don't even realize that these gestures can also have tax implication provisions under the Income Tax Act, 1961. This comprehensive guide will help you walk through everything you need to know about Gift Taxation in India- from what constitutes a taxable gift to exemptions, valuation methods, and compliance requirements.

1. What is a ‘Gift’ under Income Tax Act?

According to the Income Tax Act, 1961, a gift refers to any sum of money, movable property such as Jewellery or Shares, or any Immovable Property like land or buildings, received without consideration or without giving anything in return. The gifts may mainly include; Cash gifts in any form, whether through bank transfers, checks, or physical currency, are subject to scrutiny. The tax authorities pay particular attention to large cash transactions that might circumvent proper banking channels.

Movable assets encompass a wide range of property types. Jewellery, especially gold, is a common gift in Indian culture that falls under this category. Other examples include shares and securities, artworks, vehicles, and even high-value consumer goods like electronics or luxury items.

Immovable property gifts involve land, residential or commercial buildings, and any other permanently fixed structures. These are particularly significant due to their typically high value and additional legal formalities like registration.

The law also comprises provisions for the conditions where a property is transferred as a gift at a price significantly lower than its actual market value. In such cases, the difference between the actual payment and the market value is considered as a taxable gift.

Detailed Gift Tax Exemptions in India

• Gifts from Relatives : In case of gifting, gifts received from some closed or specified relatives are fully exempt from taxation, irrespective of their amount. Those specific Relatives whose gifts are exempted from tax are listed below include:
  • Parents
  • Spouse
  • Siblings
  • Siblings of spouse
  • Lineal ascendants/descendants (e.g., grandparents, children)
  • Spouse of the above relatives
• On Marriage : Any gifts received by an individual on the occasion of his/her marriage are fully exempt, irrespective of the person who gives them.
• By Will or Inheritance : Gifts received through will or inheritance are not taxed.
• Money Received in Contemplation of Death : Like inheritance, money obtained in anticipation of the death of a person is also exempt from the income tax gift.
• From Local Authorities or Registered Trusts : Gifts received from the local authorities or under specific conditions from charitable trusts or institutions are tax exempt.

3. How is the Taxable Value of Gifts Determined?

Determining the taxation value of gifts mainly depends upon the value of the type of gift. Below are the types of gifts and their taxable value;

1. Cash, Cheque, or Bank Transfer
   • In case the total cash or monetary gift exceeds ₹50,000, the entire amount is taxable.
2. Movable Property
   • If any movable property is received as a gift without consideration, and its fair market value (FMV) is above the threshold ₹50,000, the whole value is taxable. If the movable gifts received at a value lower than FMV, the difference exceeds ₹50,000, the difference value is taxable.
3. Immovable Property
   • If any immovable property is obtained as a gift without consideration with its stamp duty value (SDV) exceeding the threshold value, the entire stamp duty value is taxable
   • If an immovable property is received for inadequate consideration, and the difference between SDV and actual consideration exceeds ₹50,000 and is more than 10% of the consideration paid, the difference value is taxable.

Procedure to Declare Gift Tax in India

Gift tax is a form of direct tax that the gift recipients need to declare. Here in India, the recipients need to declare the value of the gift while filing their ITR. The procedure to declare gift tax in India involves certain steps, which are described below;

• Maintain Proper Documentation : Gift deeds, bank statements, and valuation reports (if applicable).
• Include in ITR : Declare the value of taxable gifts in your ITR form under "Income from Other Sources".
• Pay Tax Accordingly : Add the gift value to your total income and pay tax as per your slab.

5. Gift Tax Provisions Relating to Stamp Duty

Stamp duty plays a key role in valuing immovable property for the purpose of gift taxation. Like provisions under Section 50C, the stamp duty value is taken into consideration to determine the taxable amount if any immovable property is received as a gift. Below are the key provisions related to stamp duty value for gift tax purposes;

• The stamp duty value (SDV) is used to assess whether a gifted property is taxable.
• If the SDV of a gifted property exceeds ₹50,000 and no consideration is paid, the entire SDV becomes taxable in the hands of the recipient.
• In case of part consideration, if the SDV exceeds the consideration by more than ₹50,000 and more than 10% of the consideration, the difference is taxable.

For instance, if you receive a flat worth ₹20 lakh (as per SDV) and pay only ₹17 lakh, the difference is ₹3 lakh. Since it’s more than both ₹50,000 and 10% of ₹17 lakh (₹1.7 lakh), the ₹3 lakh will be taxable.

Conclusion

India's gift tax provisions strike a balance between preventing tax avoidance and respecting the cultural gift-giving traditions. Gifts possessing value up to a certain threshold value are exempt while those exceeding the limit are taxable. However, in case of high-value or expensive gifts, proper valuation, and documentation are vital as they might come under scruity. By understanding these rules, taxpayers can comply with the tax obligations while making the most of the available exemptions.

Author Bio

Editorial Team | in

Setindiabiz Editorial Team is a multidisciplinary collective of Chartered Accountants, Company Secretaries, and Advocates offering authoritative insights on India’s regulatory and business landscape. With decades of experience in compliance, taxation, and advisory, they empower entrepreneurs and enterprises to make informed decisions.