In our last post we read about how certain incomes may be clubbed to your income, and get taxed as your own income. What about gifts? Any discussion about clubbing of income is not complete without talking about the rules around Gifts. What happens when you decide to transfer assets or money as gift to your family or some other persons? Your brother or sister has extended you a loan which you may or may not return. You are buying a house and your family gives you money to fund your purchase. Your friend gives you Rs 25,000 so you can manage your leisure trip. These situations are common for us. We sure love receiving and giving gifts, who doesn’t 🙂 and in those moments paying tax is surely not on our minds!
Let’s see how does the Income Tax Act define GIFTS
A gift is Money or Property (both movable & immovable) that is received without consideration, or simply an asset received without making a payment against it.
Money – a sum received in cash or cheque or draft
Immovable Property – land or building or both (does not include agricultural land in rural area)
Movable Property – Shares and Securities , Jewellery (ornaments of precious metals or precious or semi precious stones in any form), Archaeological collection, Drawings or Paintings or Sculptures or any work of art for that matter, or Bullion – gold bars, silver bars or other precious metals.
For the above to qualify as a GIFT – it should be a capital asset for the Recipient
These gifts should form a capital asset in the hands of the recipient. Which means these should not form part of the stock in trade, raw material or consumables of any business of the recipient. For example – a property dealer may receive a property as a gift for business purposes. Or a Jeweler may get precious stones from someone as a gift while he carries on the business of setting them up in precious metals. These are not considered gifts and will not be taxed basis the provisions below.
Lets first look at GIFTS that are Exempt from Tax
a) Any gift of Money you receive from a person (or more than one person) is exempt from tax when your aggregate receipts do not exceed Rs 50,000. Do remember to add all the money you receive in a tax year. A total of receipts from all the persons will be added to test whether you have reached the amount of Rs 50,000.
Say if you receive Rs 40,000 from A, your colleague, since you need her to fund your laptop while you are still setting up your own work. It is not taxable for you at this stage. After a few months you receive another Rs 25,000 from B, your friend, to fund a leisure trip you are undertaking. Now your total gifts receipt has crossed Rs 50,000 and your entire receipts of Rs 65,000 will be chargeable to tax. This will be added to your ‘Income from Other Sources’. Unless of course you decide to return the money in the same tax year.
b) Gift of Immovable Property without any consideration where the stamp duty value of the property is equal to or less than Rs 50,000 is exempt from tax. Or if some consideration is paid – it will be exempt from tax only when the Stamp Duty less Consideration is equal to or less than Rs 50,000.
c) Gift of Movable Property without any consideration where the Fair Market Value of all such properties received is equal to or less than Rs 50,000. Or if some consideration paid, it will be exempt from tax only when the Fair Market Value less Consideration is equal to or less than Rs 50,000.
d) Fortunately, the IT department has given some relief, in case you receive any gifts in the following situations – such gifts (Money or Property) will be exempt. What more there is no limit on the amount you can receive!
- Received on occasion of marriage (however gifts received on birthday or other occasions are taxable)
- Received by way of a will or inheritance
- Received in contemplation of death of the payer
- Received from Local Authority
- Received from a Relative (see below)
- Received from a fund, foundation, university, or other educational institution, hospitals, or any trust of institution defined in Section 10(23C)
- Money Received from a charitable Institution registered under section 12AA
Who is a Relative –?
If you are an Individual – your Spouse, your Brother or Sister (and their respective spouses), Brother or Sister (and their spouses) of your Spouse, Brother of Sister of either of your parents, any of your or your Spouse’s lineal ascendant or descendant. (Of course this includes your parents since they are your lineal ascendants)
If you are HUF – any of your members are your Relatives. And when you receive Gifts from them those are exempt from tax.
Therefore, when your parents transfer money to your account to fund your house purchase, this is exempt from Tax. Similarly, when you transfers money to your spouse’s account so he/she can purchase a house property – no gift tax is applicable – however, note that any income that will arise from the money you gave your spouse for this purchase may attract clubbing provisions and may get taxed in your hands.
Similarly, when you decide to gift your minor children fixed deposits, such investment will not be taxed as gifts – but the income that will arise from such fixed deposits will be clubbed with your own income. If you want to go through our very detailed post on the Clubbing Provisions – go here https://blog.cleartax.in/clubbing-of-income-under-income-tax-act/
When a GIFT as per definition of gifts above is received, it is taxed in the hands of the recipient if
Gift is received by an Individual or HUF AND
It is received on or after 1st October 2009 AND
It fulfills the requirements in the table below.
It’s important to note that these are applicable irrespective of whether
- Receiver is a resident or a non-resident
- Giver is resident or non resident.
These are chargeable under the head “Income from Other Sources”
|GIFT of||Consideration/Payment against it||Condition||Taxable portion (added to Income from Other Sources)|
|Money||Without any consideration||Total money received as gift from one or more persons is greater than Rs 50,000.||Such total money received is chargeable to tax|
|Immovable Property||Without any consideration||Stamp Duty value is greater than Rs 50,000||Total Stamp Duty Value is chargeable to Tax (for each of such properties transferred)|
|Immovable Property||With some consideration||Stamp Duty Less Consideration > Rs 50,000||Amount Chargeable to Tax = Stamp Duty – Consideration (for each of such properties transferred)|
|Movable Property||Without any consideration||Total Fair Market Value of all such properties received is greater than Rs 50,000||Total Fair Market Value is chargeable to tax|
|Movable Property||With some consideration||Total Fair Market Value Less Consideration > Rs 50,000||Amount Chargeable to Tax = Total FMV – Consideration|
With this we conclude our two part series on Clubbing of Income (https://blog.cleartax.in/clubbing-of-income-under-income-tax-act/) and Tax on Gifts – do reach out to us, if you need any help!