How are Gifts Taxed in India?
What is gift tax?
If you receive gifts in cash or non cash (gifts such as cars or a property) whose value exceeds INR 50000 from friends/relatives other than your blood relatives you (receiver) have to pay tax on this gift. The person who gifts you is the donor and you are the donee (receiver). Gift tax is charged to the donee.
If the gift you receive in cash, car or a house/property is valued over INR 50000 then the value of the gifts received will be considered as “Income from other sources” and this whole amount is added to your taxable income and you are taxed as per the income tax slab you fall under.
Which gifts are taxed in India?
Gifts which exceed value of INR 50000 in :
- Land/Building ( Classified as immovable property)
- Shares, Derivatives (Futures and Options).
- Interest on Bonds/Debt/Fixed deposits.
- Jewellery, Paintings and sculptures.(art and antiques)
- Cars and two wheelers
Which gifts are exempted from tax in India?
- Gifts you receive from your spouse, parents, brother/sister, brother-in-law/sister-in-law and their spouses, the brother or sister of your parents and their spouses, your parents gifts to your wife, your son or daughter ,your grandson or your granddaughter ,your grand parents ,your son – in –law or daughter-in-law, the grandparents of your spouse are exempted from gift tax in India.
- Gifts received on the occasion of your marriage are not taxed in India. You need to remember that gifts received from the father-in-law/mother-in-law to the son-in-law are taxed.
- Gifts received as an inheritance through a will.
- Gifts received from a registered charitable trust.
- Gifts from an education, NGO , or an education trust or a university are not taxed.
- Gifts received from a local authority (State Government and so on)
- If your son/daughter who is an NRI gifts you cash through his/her NRE account.
- Any person who gifts you anticipating death soon (Does not have long to live) These gifts are exempted from tax.
Will I have to pay tax on the gifts to my minor son or daughter?
It is assumed that a minor son or a daughter has no income .It is believed that a gift such as a house or a property to a minor son or a daughter is just a method to evade taxes as assets are just distributed within the family.
The value of the gift will be added to your taxable income and you will be taxed as per the income tax slab you fall under. If your spouse earns a higher income than yours the value of the gift will be taxed under her income.(clubbing provision).
Future income from a gift to your minor child: If your minor child receives a gift such as house/property or a fixed deposit then the rental income on the property or the interest earned by the fixed deposit will be clubbed to your or your spouse’s income depending on who earns more and the income is taxed as the slab.
Will I have to pay tax on the gifts to my spouse?
If you gift a house/property or a fixed deposit to your spouse (and she does not contribute anything towards it) there is no gift tax on it. If your wife earns an income on it (rental for a house) or interest on a fixed deposit from the gift then this income is clubbed to your income as per Section 64 of the income tax act and you are taxed as per the income tax slab you fall under.
Will I have to pay gift tax on property received as a gift from my friend?
- If your friend gifts you a property free of cost (without a consideration or charging money for it) and the fair market value (actual value of the property) exceeds INR 50000 then this amount (fair market value ) is added to your taxable salary and you are taxed as per the tax slab you fall under.
- If the stamp duty on the gift (house) exceeds INR 50000 and you have received it free of cost (without a consideration) then this amount is added to your taxable salary and you have to pay tax on this amount.
I have purchased property from a friend and the deal is undervalued (sold at less than fair market value) and passed as a gift .Is gift tax charged?
If the fair market value of the property (inclusive of stamp duty) exceeds INR 50000 after deducting the consideration (amount you pay) then this amount will be taken as the value of the gift. This amount is added to your taxable salary and you are taxed as per the income tax slab you fall under.
This helps to curb money laundering and using of gifts to evade income tax.