If the aggregate value of money received during the year exceeds Rs.50,000 without consideration, then whole of such aggregate value is considered as gift and made taxable. However, there are exceptions to this rule.
As the festive season dawns upon followed by the marriage season, it is gifting time all around. Broadly, any transaction without a consideration is technically termed as a gift with few exceptions defined in the income tax act.
If the aggregate value of money received during the year exceeds Rs.50,000 without consideration, then whole of such aggregate value is considered as gift and made taxable. So to avoid tax complications, gifting below Rs.50,000 would be considered a safe bet.
The important point is that taxability of monetary gift is determined on the basis of the aggregate value of gifts received during the year and not on the basis of individual gift. In other words, an individual receiving Rs.10,000 each from 10 separate persons will have to consider aggregate value of Rs.1 lakh and hence liable for tax accordingly.
However, a bride and groom receiving gifts on their wedding do not attract tax, even if the aggregate value of such gift exceeds Rs 50,000 irrespective of the person giving it. But apart from marriage no other occasion is covered in the exemption category and so gifts received on birthdays, anniversaries etc will be fully taxable.
The income tax act has bifurcated gifts into various categories viz money, movable property and immovable property of which some gifts are taxable, some are exempt in the hands of the receiver.
Any sum of money or property (both movable and immovable property defined in the Act) received by way of gift will not be subject to tax in the following cases:-
Received from relatives as defined in the Act
Received on the occasion of the marriage of the individual.
Received under will/ by way of inheritance.
Received in contemplation of death of the payer or donor.
Received from a local Authority as defined in the Act
Received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C).
Received from a trust or institution registered under section 12AA.
Apart from the above instances, all other gifts including movable or immovable property received without consideration or inadequate consideration are taxable on fulfillment of certain conditions discussed below.
If any immovable property is received without consideration, it will be charged to tax, if the stamp duty value of such immovable property exceeds Rs. 50,000 while in case of movable property, the same will be charged to tax if the aggregate fair market value of such property during the year exceeds Rs. 50,000.
In above case, the stamp duty value and fair market value of the immovable and movable property respectively will be treated as income of the receiver.
For example if an individual received a flat as a gift from his friend with a market value of Rs 550,000, valued by Stamp Valuation Authority at Rs 900,000, then the stamp duty value of Rs 9,00,000 will be taxable in the hands of the individual receiving the gift as friend is not a relative.
However if the same individual receives shares from his father as gift or inheritance, aggregate value of which is more than Rs. 50,000, it would not be taxed ,as it is gifted by father. Had it been received from a person other than relative, the aggregate fair market value would be taxable.
The Act has also laid down the provisions of taxability of property in the hands of buyer in case of inadequate consideration, so if an immovable property received for less than its stamp duty or a movable property received is less than the aggregate fair market value and the difference between the stamp duty/fair market value and consideration exceeds Rs 50,000 then such excess over the consideration would be treated as income in the hands of purchaser.
For instance, Gold Jewelry purchased for Rs.1,84,000 carrying market value of Rs. 2,84,000, will imply tax on Rs 1 lakh in the hands of the purchaser as the Fair Market Value of the jewelry exceeds over the purchase price by Rs. 50,000. It is pertinent to note that although it is a normal transaction entered into by an individual, the same has been brought under the gamut of taxation, giving it a color of gift.
Gift tax provisions should always be seen in conjunction with the clubbing provisions as laid down in the I-T Act. For instance, gift from husband is not taxable in the hands of wife, however as per the clubbing provisions the income generated from the gift will be clubbed back in the income of husband.
Suppose, an individual makes a fixed deposit receipt in the name of his wife for Rs 10 lakh, which earns an interest of Rs. 1 lakh. The interest income will be clubbed in the income of the husband, though the fixed deposit receipt is in the name of wife as it was received without consideration.
To conclude though a gift is a token of love, feelings and appreciation to loved one; it is also a complex affair for tax purpose. Hence, while giving or receiving gifts, one always ponders about the tax implications and the possible issues inclined to it. As a result, on a cautionary note, one must ensure that the gift has to be given in writing, signed by the donor, and attested by at least two witnesses to avoid future litigation.