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May 28, 2022

TAXATION OF GIFTS RECEIVED BY AN INDIVIDUAL OR HUF

by CA Shivam Jaiswal in Income Tax

TAXATION OF GIFTS RECEIVED BY AN INDIVIDUAL OR HUF

Due to its diverse culture, customs, and religion, India is a country of close-knit families with many reasons to rejoice. There are numerous instances when gifts are exchanged. In reality, giving gifts to one another is a sign of love and affection, as well as a sign of social position.
Gifts, on the other hand, are frequently used in tax planning and evasion. Tax planning within the confines of the law is possible, but tax evasion is illegal and punishable.

The Gift Tax Act of 1958 (The GTA) was enacted by the government in April 1958 with the goal of imposing taxes on giving and receiving presents in specified circumstances. Gifts of cash, bank draft, bank cheques, or anything else of worth were accepted. In October 1998, the GTA was abolished, making all gifts tax-free. However, in 2004, the Gift Tax was restored in a new form and incorporated into the Income-tax laws. To avoid any unintended or unanticipated tax outflows, it is critical to have a basic understanding of gift taxation in India. Currently, any amount received in cash or by credit from an unrelated person by an individual or HUF over Rs.50,000 in a financial year is considered income.

Taxability of Gifts

Gifts from relatives are tax-free, and there is no limit to the amount of money that can be received as a tax-free gift from a relative. If the total value of the money received during a year exceeds Rs. 50,000, money received without consideration by an individual or HUF from any other person other than a relative is taxable.
As a result, if a person receives more than Rs. 50,000 in presents in a year and the assessee did not receive the money as a gift for the person’s wedding, the entire amount received by the taxpayer will be taxed.
Example
If a taxpayer receives a present of Rs.45,000 from a friend on his or her birthday, the entire sum is not taxable under income tax. If a taxpayer receives a present of Rs.55,000 from a friend on his or her birthday, the entire sum of Rs.55,000 will be taxable under income tax because it exceeds the threshold.

Gift from Relatives

Under the Income Tax Act, gifts from family are not taxed. The following individuals are defined as a relative of an individual under the Income Tax Act. As a result, an individual taxpayer’s income tax exemption will be limited to money received from the following individuals.

  • Spouse of the individual.
  • Brother or sister of the individual.
  • Brother or sister of the spouse of the individual.
  • Brother or sister of either of the parents of the individual.
  • Any lineal ascendant or descendant of the individual.
  • Any lineal ascendant or descendant of the spouse of the individual.

In the case of a HUF, any gift received from any of the HUF’s members is tax-free.

Recipients of Wedding Gifts

Individual taxpayers are free from income tax on money and gifts received on the occasion of their marriage.
Tax treatment of immovable property received as gift by an individual or HUF If the following conditions are satisfied than immovable property received without consideration by an individual or HUF will be charged to tax:

  • Immovable property, being land or building or both, is received by an individual/HUF.
  • The immovable property is a capital asset within the meaning of section 2(14) for such an individual or HUF.
  • The stamp duty value of such immovable property received without consideration exceeds Rs. 50,000.

When immovable property received by an individual or HUF without consideration (i.e. by way of gift) is not charged to tax In following cases, gift of immovable property will not be charged to tax.

Tax treatment of gift of immovable property located abroad

If the conditions discussed in earlier part (regarding the taxability of gift of immovable property) are satisfied, then gift of immovable property will be charged to tax whether the property is located in India or abroad.

Inheritance through Will

Money obtained as a result of a will or inheritance is not subject to income tax. As a result, no income tax will be due on any moveable or immovable assets inherited as a result of a relative’s death.

Money Received in Contemplation of Death

Similar to inheritance being not taxable, money received in contemplation of death of an individual or Karta or member of a Hindu undivided family is also exempt from Income Tax.

Gift Received from Local Authority or Charitable Trust

According to the Income Tax Act, any money received from a local authority or fund, foundation, university, other educational institution, hospital or other medical institution or any trust having 12A registration is exempt from income tax. As per this provision, money received by a meritorious student from a college or university or a patient under medical care can be exempt from income tax.

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