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Taxation on gifts: Everything you need to know

Let us take you through some of the rules and key points to remember about taxes on gifts this season.

What is a gift tax?

In tax terminology, a ‘gift’ denotes any type of an asset or a property that one receives from someone without consideration (that is, without providing anything as payment or in return).

The main types of gifts that are deemed taxable and thereby subject to the gift tax are:

    • Gift of money/cash
    • Immovable property, such as a house or commercial space
    • Movable property, such as jewellery or a vehicle
How is the gift tax calculated in such cases?

Any gifts received by a recipient is contributed towards his or her income for the financial year and taxed as per the applicable income tax laws. However, there are also a few factors that come into play when an individual receives one of these three types of things as a gift.

The first of these factors is, of course, the stamp duty value (in case of immovable property) or the fair market value (in case of movable property) of the gift. If this value is below ₹50,000, one is exempted from having to pay a gift tax on it altogether. This also holds in case the gift was of money (that is, in the form of cash or cheque).

However, if the value of the gift exceeds ₹50,000, then the entire amount is considered taxable under gift taxation rules since it is essentially treated as income in the hands of the recipient. Then, there is the matter of whether consideration was involved or not. If consideration was involved and the value of the gift exceeds it by ₹50,000, the consideration amount is deducted from the value, and the resulting amount is deemed taxable under gift tax.

Are there any exceptions to the gift tax?

Absolutely. Here are certain situations in which gifts of value exceeding the amount of ₹50,000 are exempted from the usual gift taxation rules. Here are some of the most important ones:

  • A recipient does not have to pay gift tax if they receive a gift by his or her relative. However, the word ‘relative’ is defined strictly in Income Tax terms, which means that it may not necessarily extend to members that you might typically consider family.
  • For example, let us say you are a software engineer in Bangalore, earning a monthly salary. But you also receive PF contribution from your employers. At the same time, you also have a property that you have rented out, and you also trade some stocks and make gains on them.
  • You are exempted from paying gift tax if you receive something by means of a will or inheritance.
  • You are also exempted from gift tax if you receive sum or property from a fund, trust, foundation, university, other educational institution.
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