Tax Talk: Not every gift is exempt from tax

September 29, 2021 1:45 AM

While all monetary gifts are covered, the Act restricts its scope in case of the non-monetary gifts only to land, building, shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures, any work of art and bullion.

Any sum of money received in excess of Rs 50,000 in aggregate by a person during a financial year is taxable in the hands of the receiver.

By Shailesh Kumar

With the abolishment of gift tax in India, income tax provisions were introduced vide Finance Act, 2004 to tax certain gift transactions. Initially, the income tax provisions for taxation of gifts were restricted to gifts received by individuals and HUFs. However, further tightening the noose, provisions for taxation of gifts were revamped vide Finance Act 2017 and were made applicable to any sum of money and/or certain movable and immovable property received by any person (including a company, firm, AOP/BOI) without/ for inadequate consideration.

Tax on gifts
While all monetary gifts are covered, the Act restricts its scope in case of the non-monetary gifts only to land, building, shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures, any work of art and bullion.

Any sum of money received in excess of Rs 50,000 in aggregate by a person during a financial year is taxable in the hands of the receiver. What is to be noted here is that the exemption limit is to be checked by aggregating all sources from which money is received by such a person. For example, individual A receives Rs 21,000 from B, Rs 31,000 from C and Rs 5,100 from D.

Since in aggregate A has received Rs 57,100 which is above the threshold of Rs 50,000, such aggregate sum received as gift shall be taxed in the hands of A even though individually no amount exceeds the exemption limit of Rs 50,000. It may also be noted that once the aggregate limit of Rs 50,000 is breached, then the entire aggregate amount is taxed and not merely the amount exceeding Rs 50,000. So, in this example, the entire amount of Rs 57,100 will be taxed in the hands of A.

On the other hand, where the gift is received in the form of non-monetary assets, such as immovable property or specified movable property, as mentioned above, taxability is decided on the basis stamp duty value for immovable property and fair market value (FMV) in other cases. A gift being without consideration, where stamp duty value in case of immovable property and FMV in case of movable property exceeds Rs 50,000, such stamp duty value or FMV shall be taxed in hands of the recipient.

Inadequate consideration
However, if property is received by taxpayer in exchange of inadequate consideration then, in the case of immovable property, if difference between stamp duty value and purchase price is in excess of higher of `50,000 and 10% of the purchase price, such difference between stamp duty value and purchase price is taxed in hands of the receiver. If any other specified movable property is received for inadequate consideration, then excess of FMV over the consideration paid is taxed in the hands of the receiver, if such difference is more than `50,000.
There are certain situations where gifts are not subject to income tax such as where money or property is received from a relative, on occasion of one’s marriage, under a will or by way of inheritance, death of a donor, etc. The term ‘relative’ is defined, which includes spouse, brothers, sisters, parents, lineal ascendants/ descendants of taxpayer and spouse, etc.

All gifts whether received from relative or non-relative on occasion of marriage are exempt from tax. But gifts from non-relative on occasions other than marriage like birthday, anniversary, etc., will be exempt only if such sum does not exceed the aggregate threshold of Rs 50,000 in a year.

The writer is partner, Nangia & Co LLP

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