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My Father has gifted me some money Rs 1,00,000. Do I have to pay tax on it? Do I have to show it in Income tax return. What happens when you decide to gift money, assets to your family or some other persons? Or you get Gifts. Say You are buying a house and your family gives you money to fund your purchase. Your friend gives you Rs 20,000. Brothers gift sisters on Rakshabandhan. Parents gift their children on every occasion, especially during marriage. Grandchildren are the recipients of loads of gifts from grandparents. But are these gifts taxable? Are not some gifts exempt from tax? For what gifts does one have to pay tax? Does receiver has to show gift received while Filing income tax return? if yes where and how? Is there some documentation required ?

What is a Gift?

A gift is Money or House, Shares, Jewellery etc. that is received without consideration, or simply an asset received without making a payment against it and is a capital asset for the Recipient. Examples of Gifts and the form are

  • 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 ,Bullion ( gold bars, silver bars or other precious metals)  or Jewellery (ornaments of precious metals or precious or semi precious stones in any form), Archaeological collection, Art such as Drawings or Paintings or Sculptures

History of Gift Tax in India

As gifts can be a big source of money laundering if there are no limits , Gift Tax has been  in India.

  • Gifts Tax Act was introduced in India first time in 1958 . Any gift worth more than Rs 25000 were subject to tax. From preview of gift tax any cash, cheque or a draft received form non blood relative was considered as a gift.
  • Gift  tax was abolished in 1998.
  • It was re-introduced  in 2004. Now Gift  received  by Individual or HUF of more than Rs 50,000 is subject to gift tax. It is taxable under head Income From Other Sources under Sec 56(2) (vi).

Are all Gifts taxed?

As per the Income Tax Act, 1961 if the value of gifts received is more than Rs 50,000 a year, then such amount is taxed as income in the hands of the receiver. These gifts may be in any form ,cash, jewellery, movable and immovable property, shares etc. However, there are exemptions for example this rule is not applicable if your relatives present the gifts. But Rules related to clubbing of income would apply on certain instances.

Gifts received from non-family are exempt in following cases.

  • Any gift of Money you receive is exempt from tax when your total amount of money does not exceed Rs 50,000. Do note it is sum of all the gift money you received. Say if you receive Rs 20,000 from Ram, your friend. It is not taxable for you . After a few months you borrow another Rs 35,000 from Shyam  your colleague. Unless you return some money , your total gifts receipt Rs 55,000(20,000 + 35,000) has crossed Rs 50,000 and your entire Rs 55,000 will be chargeable to tax. This will be added to your Income from Other Sources.
  • 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.
  •  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.

Gifts received from family are exempted from tax

Not all Gifts are taxable. Income tax has exempted certain situation from paying any income tax on any amount of gift received in following cases:

  • Gift received by Specified relatives, irrespective of the gift value
  • Gifts received  on the occasion of marriage.
  • Money or property received by way of a Will and Inheritance. Say you inherited a house, then the income generated later  by way of rent  would be taxable.
  • NRIs gifting parents in India from their NRE account
  • HUF receiving gift from its Members
  • Gift from any local authority (as defined under section 10(20)) or from any foundation or university or any trust or institution referred to in section 10(23C) or registered under section 12AA

Now just to escape gift tax in India you can’t call a person your relative. The Income tax rules specify relatives from whom tax free gifts can be received. These are:

  • Parents
  • Spouse
  • Your and your spouse’s brothers and sisters
  • Brothers and sisters of your parents
  • Other Lineal ascendants or descendants of self or spouse  (and their spouses)

But in some cases Clubbing of Income applies.

One can gift to your husband or wife. But, Please be careful that if your spouse invest this money and any gain like interest, Rent etc is received it would be clubbed with your income. Our article Clubbing of Income covers it in detail.

Do you need to show the Gift received while filing ITR?

There are two thoughts :

  • One thought says ITR stands for   INCOME TAX RETURN . Gift received from a relative is not at all an Income . Therefore there is no necessity of disclosing that money received in the Income tax return.
  • Others say that if by any chance your PAN has been reported via AIR transaction than there are chances for Scrutiny. At that times such question can be raised. Then it is better to show it in  In Schedule Exempt Income (EI) under Others, as shown in image below for ITR2. In ITR1 there is no such separate section, so just show as exempt Income.

In any case it is suggested that it is good to show Gifts through Gift Deed.

Exempt Income in ITR2

Exempt Income in ITR2

Exempt Income ITR1

Exempt Income ITR1

What is a Gift Deed?

A Gift Deed is a legal document that describes voluntary transfer of gift from donor  to donee (receiver of gift) without any exchange of money. The donor must not do so for tax evasion . Gift is something which

  1. It must be well defined existing movable or immovable property
  2. It must be transferable
  3. It should exist today and should not be a future property
  4.  It should be tangible.

To gift immovable property, you just have to draft the document on a stamp paper, have it attested by two witnesses and register it. Registering a gift deed with the sub-registrar of assurances is mandatory as per Section 17 of the Registration Act, 1908, failing which the transfer will be invalid. Besides, such a transfer is irrevocable. Once the property is gifted, it belongs to the beneficiary and you cannot reverse the transfer or even ask for monetary compensation.

However, if you want to gift movable property like jewellery, registration is not compulsory. At the same time, a mere entry in an account book is not sufficient to establish a transfer. Apart from physically handing over the property, you need to back it with a gift deed. The process is slightly different if you are gifting company shares. You will have to fill out the share transfer form and submit it to the company or registrar, and the transfer agent of the firm. Once again, get a gift deed drawn and executed to complete the transfer, but the document need not be registered.

Though a gift deed cannot be revoked, it can be challenged in court, coercion and fraud being the most common grounds. So, if you have been tricked into gifting property, you can take the matter to court and have the transfer reversed. It can also be challenged on the grounds that the donor was not of sound mind or a minor. We shall cover this in depth in our article about Gift Deed.

FAQ:

My Father has gifted Rs 100,000? Do I have to pay tax? 

If you are adult or major child No. Gifts received from specified relatives are exempt from Income Tax, and there is no upper limit also. Father is included in the definition of relative, therefore amount received from him would be tax free. Your Father can be giving over some money to your major child (above 18 years, who may not be earning), in this case if the major child invests that money – any income from these investments will not be taxable in your father hands but will be taxed in the hands of the major child. So therefore, there will be no clubbing of income in case of a major child.

I have gifted Rs 50,000 to my parents? Do I have to pay tax or my parents have to pay tax?

No. Neither you nor your father or mother have to pay any tax. If the amount is big, can be reported in AIR, or used for investment or earning and your parents file Income tax return then just write a simple document saying that you have gifted money is sufficient. Your parent can show it as exempt income while filing ITR

My father in law has given Rs 1,50,000? Is it Taxable?

Since Father in law falls under definition of relative it is not taxable . But please make sure that amount he is giving to you , has been declared by him in his Income Tax Return. If you are a female and your father-in-law has gifted then clubbing of income would arise if you use the gift money to earn income

 I want to Gift a House to my daughter in law. Is it taxable? 

Daughter in law, falls under the definition of relative. Hence it is not taxable. Please note that if your daughter in law gets House rent from this property and it would be clubbed with your income

I gifted Gold Ring to my Fiancée? Is Gift to Fiancée  taxable? 

If you have given a ring say worth Rs 70,000 to your fiancée. This entire amount is taxable in her hands, as jewellery (moveable property) above Rs 50,000 is taxable in the hands of the recipient. As she is still not your wife, but only fiancée, so the gift is taxable. If you were married, and would have given the gift then question of tax would not have arisen.

Related Articles:

Consult your chartered accountant on the tax liability due to investing money received as gifts. Rules related to clubbing of income would apply on certain instances thereby increasing the tax liability.

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