Giving and receiving gifts is an integral part of India’s cultural heritage. While in most cases, the value of such presents is nominal, but in some cases, the value of gifts such as property, jewelry, works of art, etc., can be substantial. Inheriting wealth or receiving a generous gift can be endearing, but the joy can be dampened by confusion about potential tax implications. Navigating the intricacies of gift and inheritance taxes in India necessitates a thorough grasp of specific regulations and exemptions.
How does the Income Tax Act Define a ‘Gift’?
Under the definition provided by the Income Tax Act, a “gift” can be in the form of money and movable/immovable property that an individual receives from another individual or organization without making a payment. The main types of gifts that are deemed taxable and thereby subject to the tax are:
- Money received by cash, draft, cheque, bank transfer, etc.
- Immovable property such as land, building, residential/commercial property, etc.
- Movable property such as jewelry, shares, bonds, paintings, sculptures, etc.
Are Taxes Applicable to Gifts?
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, several factors influence the tax implications when an individual receives any of these three types gifts.
The primary factor to consider is the stamp duty value for immovable property or the fair market value for movable property of the gift. If this value is below ₹50,000, no tax is payable on the gift. This exemption also applies if the gift was in the form of money (such as cash or cheque).
However, if the value of the gift exceeds ₹50,000, the entire amount is subject to taxation as it treated as income for the recipient. Additionally, the taxability depends on whether any consideration (payment or exchange) was involved. If consideration was part of the gift, the value of the consideration is deducted from the total gift value exceeding ₹50,000, and the remaining amount is considered taxable.
When do Gifts Qualify for Tax Exemption?
According to current tax laws in India, not all gifts are taxable. The Income Tax Act of 1962 provides specific provisions for receiving tax-exempt gifts.
For instance, gifts or cash received up to ₹50,000 in a financial year are not subject to taxation.
Likewise, gifts received from immediate family members including parents, spouse, siblings, and in-laws are exempt from tax, regardless of their monetary value. Additionally, in India, it is customary to exchange valuable gifts like jewelry and property during weddings. Fortunately, according to current regulations, gifts received on the occasion of marriage are not subject to any tax, irrespective of their value.
Receiving money or property through inheritance or a will is considered a tax-exempt gift since no payment is made to acquire it. Similarly, gifts received from local authorities or recognized religious or charitable organization are also tax-exempt.
Are taxes Applicable to Inheritances?
The tax implications vary between inherited movable and immovable property.
Inheritance of Immovable Property
When someone inherits immovable property, no inheritance tax is levied. However, upon receiving the property, the inheritor assumes legal ownership and is required to declare any income generated by the asset as part of their taxable income. Additionally, they are responsible for paying property taxes on rental income, if applicable. If the inheritor chooses to sell the inherited property, capital gains taxes are applicable, taking into account the acquisition cost and the duration for which the property was held by the previous owner.
Inheritance of Movable Property
Similar to immovable property, there are generally no immediate tax implications for the recipient of movable property upon inheritance. However, for movable assets, such as jewelry, mutual funds, and bank accounts, the beneficiary or legal heir must ensure that the account details are updated to facilitate a smooth transfer of funds or assets. When such movable assets are eventually sold, capital gains taxes come into play, taking into account the acquisition cost and holding period of the previous owner.
How to Determine the Taxable Value of a Gift?
To determine the tax liability upon receiving a gift, the Income Tax Act provides specific provisions for calculating its taxable value. The below table shows how the taxable value of various types of monetary as well as non-monetary gifts is calculated:
| Type of Gift | Applicability of Tax | Taxable Value of the Gift |
| Cash, Cheque or Bank Transfer | If the value of the gift exceeds ₹50,000 | The entire sum of money received as a gift |
| Immovable property such as land, building, etc., without consideration (i.e., without making any payment) | If Stamp Duty Value of the gift exceeds ₹50,000 | Stamp duty value of the property received as a gift. |
| Any immovable property for inadequate consideration (i.e., property purchased at a price lower than the Stamp Duty Value of the property) | If Stamp Duty Value of the gifted immovable property exceeds the purchase price by higher of the following: more than ₹50,000 or 10% of the consideration | The difference between the Stamp Duty Value and the purchase price of the gifted property is taxable. |
| Assets such as jewelry, shares, paintings, sculptures, etc. without consideration (i.e., without making any payment) | If the fair market value of the gift exceeds ₹50,000 | Fair Market Value of the gift. |
| Assets such as jewelry, shares, paintings, sculptures, etc. for consideration (i.e., bought by the donor before being gifted) | If the fair market value of the gift exceeds the purchase price by more than ₹50,000 | The difference between fair market value and the purchase price of the gift is taxable. |
To conclude, gifts and inheritances can be significant financial windfalls, but understanding potential tax implications is crucial for informed decision-making. Utilizing the exemptions available, being aware of indirect taxes, and seeking professional guidance when needed can ensure you navigate these situations smoothly and maximize the benefit you receive. Remember, responsible wealth management goes beyond taxes, embracing ethical considerations and open communication for long-term familial harmony and financial well-being.
