Tax treatment of Gift in India

Taxability of Gift in India under head Other Sources

Tax Treatment of Monetary Gifts and Movable/Immovable Properties in India as per Finance Act 2020 and 2021

Tax Treatment of Gift received by an Individual or HUF in the form of Money

If the aggregate value of monetary gift received during the year by an individual or HUF exceeds Rs. 50,000, then complete value of gifts whether received from India or abroad will be charged to tax.

Suppose Mr. A receives gift of Rs. 20,000 from his one friend and Rs. 30,000 from another friend. This this case aggregate value of monetary gift received during the year is Rs. 50,000, thus complete Rs. 50,000 is exempted.

Suppose Mr. A receives gift of Rs. 30,000 from his one friend and Rs. 30,000 from another friend. This this case aggregate value of monetary gift received during the year is Rs. 60,000, thus complete Rs. 60,000 is taxable.

Cases in which sum of monetary gift received without consideration by an individual or HUF is not charged to tax

Any sum of money—

  • from any relative; or
  • on the occasion of the marriage of the individual; or
  • under a will or by way of inheritance; or
  • in contemplation of death of the payer or donor, as the case may be; or
  • from any local authority as defined in section 10(2); or
  • from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in section 10(23C); or
  • from or by any trust or institution registered under section 12A; or Section 12AB; [Inserted vide Finance Act, 2020] or
  • by any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in section 10(23C); or
  • by way of transaction not regarded as transfer under certain clauses of section 47; or
  • from an individual by a trust created or established solely for the benefit of relative of the individual.
  • From such class of persons and subject to such conditions, as may be prescribed. (w.e.f. AY 20- 21)
Points to remember:
  • Marriage of the individual is the only occasion when monetary gift received by him will not be charged to tax Gift received on the occasion of marriage of the individual is not charged to tax. Apart from marriage there is no other occasion when monetary gift received by an individual is not charged to tax. Hence, monetary gift received on occasions like birthday, anniversary, etc. will be charged to tax.
  • Taxability of monetary gifts received from friends are taxable for are not covered under exemption stated above Gifts received from relatives are not charged to tax, but friends are not covered under the list of ‘relative’ given above and hence, gift received from friends will be charged to tax (if other criteria of taxing gift are satisfied).
  • Monetary gifts received from abroad If the aggregate value of monetary gift received during the year by an individual or HUF exceeds Rs. 50,000 and the gifts are not covered under the exceptions discussed in earlier part, then gifts whether received from India or abroad will be charged to tax
  • Gifts by a resident person to a non-resident To ensure that such gifts made by residents to a non-resident person are subjected to tax in India, the Finance (No. 2) Act, 2019 has inserted a new clause (viii) under Section 9 of the Income-tax Act to provide that any income arising outside India, being money paid without consideration on or after 05-07-2019, by a person resident in India to a non-resident or a foreign company shall be deemed to Income accrue or arise in India. Such income is now taxable in India (which was not taxable before such amendment).

Tax treatment of immovable property received as gift by an individual or HUF

Here immovable property means
– land or
– building or
– both
The immovable property shall be a capital asset within the meaning of section 2(14) for such an individual or HUF.

Case when the gift of immovable property is received without any consideration (absolutely free)

Such gift is taxable only if the stamp duty value of such immovable property received without consideration exceeds Rs. 50,000.

Points to remember:

  • While calculating the value of gift, we have to consider only stamp value (not FMV)
  • In this case, if the stamp value of gift exceeds Rs. 50,000, entire stamp value shall be liable to tax (not only that part which is in excess of Rs. 50,000)
  • If the stamp value of gift exceeds Rs. 50,000, gift shall be taxable whether the property is located in India or abroad.

Case when the gift of immovable property is received for some consideration (not absolutely free)

If an individual or HUF has acquired immovable property for a consideration less than the stamp duty value of such property, and the difference exceeds higher of Rs. 50,000 and 10% of the consideration, than the difference between the Stamp Duty Value and the Purchase Price shall be liable to tax.

Note: The Finance Act, 2020 has increase the safe harbor limit of 5% to 10% w.e.f. Assessment Year 2021-22

Illustration:
Suppose, Mr. Aallu acquired a property for Rs. 50 lakh whose Stamp Duty Value is Rs. 52 lakh.

Now higher of Rs. 50,000 or 10% of 50 lakh (Rs. 5,00,000) is Rs. 5,00,000. And difference between the consideration (Rs. 50 Lakh) and Stamp Duty Value (Rs. 52 lakh) is Rs. 2,00,000.

Here difference (Rs. 2 lakhs) between the consideration (Rs. 50 Lakh) and Stamp Duty Value (Rs. 52 lakh) is less than the higher of Rs. 50,000 or 10% of 50 lakh (Rs. 5,00,000), therefore nothing is liable to tax.

But, suppose, if purchase consideration is Rs. 50 lakh and Stamp Duty Value is Rs. 56 lakh. Here, higher of Rs. 50,000 or 10% of 50 lakh (Rs. 5,00,000) is Rs. 5,00,000. And difference between the consideration (Rs. 50 Lakh) and Stamp Duty Value (Rs. 54 lakh) is Rs. 6,00,000.    

Now difference (Rs. 6 lakhs) between the consideration (Rs. 50 Lakh) and Stamp Duty Value (Rs. 54 lakh) is higher than the higher of Rs. 50,000 or 10% of 50 lakh (Rs. 5,00,000), therefore the entire difference (6 lakh) shall be liable to tax.

Tax treatment of movable property received as gift by an individual or HUF

Here movable property means
  • shares/securities,
  • jewellery,
  • archaeological collections,
  • drawings,
  • paintings,
  • sculptures or
  • any work of art and bullion
being the capital asset.

Case when the gift of movable property is received without any consideration (absolutely free)

Such gift is taxable only if the aggregate fair market value of such property received without consideration exceeds Rs. 50,000.

Points to remember:

  • While calculating the value of gift, we have to consider only fair market value
  • In this case, if the FMV of gift exceeds Rs. 50,000, entire FMV shall be liable to tax (not only that part which is in excess of Rs. 50,000)
  • Gift of any other movable property like electric items, motor car etc. shall not be taxable for they are not covered in the list of movable property stated above.

Case when the gift of movable property is received for some consideration (not absolutely free)

If an individual or HUF has acquired movable property/ies for a consideration less than the aggregate fair market value of such property, and the difference exceeds higher of Rs. 50,000, than the difference between the aggregate FMV and the Purchase Price shall be liable to tax.

Cases in which gift of immovable property or movable property received without consideration or for some consideration by an individual or HUF is not charged to tax

In following cases, gift of immovable property will not be charged to tax.

  • Property received from relatives.
  • Property received on the occasion of the marriage of the individual.
  • Property received under will/ by way of inheritance.
  • Property received in contemplation of death of the donor.
  • Property received from a local authority [as defined in Explanation to section 10(20) of the Income-tax Act].
  • Property received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C).
  • Property received from a trust or institution registered under section 12AA or section 12AB.

Meaning of Relative

For the purpose of taxability of gift, relative means:

In case of an Individual

  1. Spouse of the individual (Husband/wife);
  2. Brother or sister of the individual;
  3. Brother or sister of the spouse of the individual;
  4. Brother or sister of either of the parents of the individual;
  5. Any lineal ascendant or descendent of the individual (like Mother/Father/Grandmother/ grandfather/son/daughter);
  6. Any lineal ascendant or descendent of the spouse of the individual (like In-laws) ;
  7. Spouse of the persons referred to in (b) to (f).

In case of HUF, any member thereof

Illustrations for more Understanding

Illustration 1 (related to monetary gift)
Mr. Kachallu received following gifts during the financial year 2021-22: 

  • Rs. 1,57,000 from his friend residing in USA.
  • Rs. 20,100 from his elder brother residing in Mumbai.
  • Rs. 84,000 from his friend residing in Haryana (received on the occasion of birthday of Mr. kachallu).

What will be the tax treatment of above items in the hands of Mr. Kachallu?

Solution:

  1. Monetary gift received from elder brother is not taxable as elder brother is covered within the definition of relative
  2. Monetary gifts received from his friend residing in USA and residing in Haryana are taxable as friends are not covered within the definition of relative. Further, monetary gift received on the occasion of birthday is taxable (only occasion of marriage is exempted). Here, the aggregate value of gifts is Rs. 2,41,000, which is exceeding Rs. 50,000. Hence, this entire value is taxable.

Illustration 2 (related to monetary gift)
During the financial year 2021-22, Mr. Babu received following gifts from his friends:

  • 30,000 on 1-6-2021
  • 15,000 on 20-1-2022

What will be the tax treatment of above gifts?

Solution:
Friends are not covered under the definition of ‘relatives’. Thus monetary gift received from friends are liable to tax. But, in this case, the aggregate value of monetary gift is less than Rs. 50,000. Therefore, nothing shall be taxable.

Illustration 3 (related to gift of immovable property without consideration)
An Individual received a gift of flat from his friend. The stamp duty value of the flat is Rs. 184,000. In this case whether the total value of gifted property will be charged to tax or only the value in excess of Rs. 50,000 will be charged to tax?

Solution:
In case of gift of immovable property without consideration, if the stamp duty value of gift is more than Rs. 50,000, entire value of gift shall be liable to tax. Here, individual has received a gift of flat from his friend. Friends are not covered under the definition of ‘relatives’. Thus, Rs. 1,84,000 is taxable income of individual.

Illustration 4 (related to gift of immovable property without consideration)
On 1-6-2020, Mr. Sabu gifted his house to his friend Mr. Babu. The market value of the building was Rs. 6,40,000 and the value of the building adopted by the Stamp Valuation Authority for charging stamp duty was Rs. 8,00,000. Advice Mr. Babu regarding the tax treatment in this case.

Solution:
In case of gift of immovable property without consideration, if the stamp duty value of gift is more than Rs. 50,000, entire stamp duty value of gift shall be liable to tax. Here, we are not concerned with FMV. Further, friends are not covered under the definition of ‘relatives’.

Thus, entire stamp duty value (Rs. 8,00,000) shall be liable to tax.

Illustration 5 (related to gift of immovable property with some consideration)
On 18-8-2020, Mr. Dabbu (a salaried employee) purchased a building from Mr. Kachallu for Rs. 28,00,000. The value of the building adopted by the Stamp Valuation Authority for charging stamp duty was Rs. 31,00,000. Advice Mr. Dabbu regarding the tax treatment in this case.

Solution:
The difference between the purchase price and stamp duty value of building is Rs. 3,00,000 which is higher than higher of Rs 50,000 or 10% of purchase price (Rs. 2,80,000). Thus, the entire difference (Rs. 3,00,000) between the stamp duty value and purchase price shall be liable to tax.  

Illustration 6 (related to gift of movable property without consideration)
During the financial year 2020-21, Mr. Lollo received following gifts from his friends/relatives:  

  • Shares received from his brother, the fair market value (i.e. value as per stock exchange) of the shares on the date of gift was Rs. 3,77,000.
  • Jewellery received from his friend, the fair market value of the jewellery is Rs. 54,000.
  • Jewellery received from his friends and relatives on the occasion of his marriage, the fair market value of jewellery is Rs. 4,00,000.

Advise Mr. Lollo regarding the tax treatment of above gifts.

Solution:

  • Case 1: Shares are covered in the list of movable properties. But Mr. Lollo received shares from his brother. Brother is covered in ‘relatives’. Thus, nothing shall be taxable.
  • Case 2: Jewellery is covered in the list of movable properties. Mr. Lollo received Jewellery from his friend. Friend is not covered in the list of ‘relatives’. Further, the fair market value of the jewellery is above Rs. 50,000. Thus complete value of Rs. 54,000 is taxable.
  • Case 3: Jewellery is covered in the list of movable properties. But Mr. Lollo received Jewellery from his friend and relatives on the occasion of marriage. Gifts received on the occasion of marriage are not taxable. Hence, in this case, nothing shall be taxable.

Illustration 7 (related to gift of movable property with some consideration)
During the financial year 2020-21, Mr. Lollo purchased the following capital assets:

  • Gold jewellery purchased for Rs. 2,14,000, the fair market value of gold jewellery is Rs. 2,79,000.
  • Bullion purchased for Rs. 5,50,000, the fair market value of the bullion is Rs. 6,00,000.
  • Motor car purchased for Rs. 3,52,000, the fair market value of car is Rs. 5,60,000.

Advise him regarding the tax treatment of above items acquired by him.

Solution:
Case 1: Difference between purchase consideration and FMV of gold jewellery is Rs. 65,000.

Case 2: Difference between purchase consideration and FMV of bullion is Rs. 50000.

Case 3: Motor car is not covered under movable property for the purpose of taxation of gift.

So, in aggregate, the total excess difference between purchase consideration and FMV of gold jewellery and bullion is 1,15,000 which is more than Rs. 50,000. Hence, the entire excess of fair market value over purchase price i.e. Rs. 1,15,000 will be charged to tax in the hands of Mr. Lollo.

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