Tax Implication On Gift Received From Relative & Other Individual in Cash Or In Kind

Tax Implication On Gift Received From Relative & Other Individual in Cash Or In Kind

A “gift” might be money or movable/immovable property that an individual receives from another individual or organisation without making a payment, according to the Income-tax Act definition. In legal terminology, the person or organisation providing the gift is designated the donor, while the gift receiver is known as done.

However, many a time gifts can also be a part of tax planning/tax evasion. While tax planning done within the framework of law is permissible, tax evasion is prohibited and can be penalised. 

The Government introduced a gift tax in April 1958, regulated by the Gift Tax Act, 1958 (GTA), with an objective to impose taxes on giving and receiving gifts under certain specific circumstances. Gifts in the form of cash, demand drafts, bank cheques, or anything having value were covered. 

However, the GTA was abolished in October 1998 and made all gifts tax-free. But, GTA was reintroduced in a new form and included in the income tax provisions in 2004. It is highly important to have a basic understanding of taxation on gifts in India to avoid any ignorant/unplanned tax outflow.

Gift Taxation in India

As per Section 56 of the Income-tax Act,1961 as it stands today which was amended in 2017, gifts received by any person or persons are taxed in the hands of the recipient under the head ‘Income from other sources’ at normal tax rates. We have discussed below what kind of gifts are covered and their quantum to be taxed.

Section 56(2)(x) : For recipient – Taxability of sum of money or property Received without Consideration Or inadequate consideration (Gift Income) With Effect From – 1.10.2009

TRANSACTION	CONDITION	TAXABLE AMT
Sum of Money Without Consideration	Aggregated value exceeds ₹ 50,000/- p.a.	Entire Amt. received
Movable Property Received without consideration	Aggregate Fair Market Value of such prop. Exceeds ₹ 50,000/- p.a.	Entire Fair Market Value.
Movable Property Received with Inadequate Consideration	If Fair Market Value exceeds consideration For more than ₹ 50,000/- p.a.	Diff. of Fair Market Value & Consi.
Immovable Prop. Received w/o consideration (land or building or Both)	Stamp duty exceeds ₹ 50,000/- (Here per transaction)	Stamp Duty
Immovable Prop. Received with Inadequate Consideration (Actual sale consideration < Stamp duty)	Diff of actual value & SD is higher then a) ₹ 50,000/- & b) 10% of actual consideration. [In tuning with 43CA, 50C]	Difference between stamp duty and actual consideration

E.G. Mr. J.K   sold property to M₹ Dalal for ₹ 2000000. Stamp duty on date of agreement

for ₹2060000. What is IFOS income for Mr. Dalal? And What will be FVC for J.K

Ans. IFOS= 0(Because diff is not more than 10% of actual consideration)

FVC= 20,00,000 for J.K

E.g. Mr. Shiv   sold property Mr. Dalal for ₹500000. Stamp duty on date of agreement for

₹610000. What is IFOS income for Mr. Dalal? And What will be FVC for Shiv

Ans.: IFOS= 110000, FVC= 610000

Note  :  Generally we take stamp duty on date of registration but Taxpayer has option to

take stamp duty value as on date of agreement (& not date of reg.)

If Part of consideration must have been paid by way of A/c payee cheque A/c payee draft or use of ECS   or by e-mode on or b4 date of agreement.

 When Sec. 56(2)(X) is N.A. :

If sum of money or prop. Received from :

1. Relative.
2. On Occasion Of Own Marriage.
3. Under Will or Inheritance.
4. From Local Authority.
5. From Institution / Trust registered u/s 10(23C) or 12AA/12AB.
6. Gift Income will also not be taxable if received for the followings:
7. Received by individual for expense on himself/family for illness of Covid 19
8. Received by family member of deceased person from employer of deceased person(For any amount) or from any other person (Upto total 10 lakhs).This exemption only if death is due to Covid-19 and gift received within 12 month from date of death .

Meaning:

1. Property : Capital asset namely

• Relative :   

For Individual	For HUF
Spouse .	1.Any Member .
Brother or Sister .
Brother or Sister of Spouse .
Brother or Sister or either of parents of Individual.
Lineal ascendant or descendant.
Lineal ascendant or descendant of spouse.
Spouse of all above. (For Nephew Uncle is relative but for Uncle Nephew is not .)