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What is Gift Tax and is it Taxable in India?



Don’t you remember your childhood days when you received gifts on your birthday and festivals? What joy it brought you .Don’t you remember the Christmas season when you stayed up the whole night for Santa Claus to come on his Reindeer Drawn Sleigh brimming with gifts. Oh how you wished you could catch him sliding down your chimney to fill your stockings with gifts. When you were in college how happy you felt when Granddad gifted you a bike on your Eighteenth Birthday? .In Indian Tradition on festive occasions we gift our friends and relatives Mithais and Sweets. Don’t you carry gifts of books and clothes when your friend invites you to his birthday party? .On Valentine’s day don’t you gift your beloved a Rose?. In India just as in the World, flowers are a popular means of expressing love and affection through gifts .In India the Wedding season is one in which vast quantities of gifts exchange hands. Gifts mainly include Jewelry, Electronic Items, Home Appliances, Cash, and Decorative items. Famous Politicians, Cricketers and Film Actors in India are gifted Cars, Property, Jewelry out of admiration by their followers and fans .I would like to remind all of you that the team of Financial Planners at Moneymindz.com are always there for you to plan your Taxation needs in a most effective and efficient manner. You can explore this unique Free Advisory Service just by giving a missed call on 022 6211 6588.It would be wise to remember the saying "A Book Is A Gift, Which Can Be Opened Again And Again".

What Is Meant By Gift Tax In India?

  • A Gift in India is defined as a movable or an immovable property and made voluntarily without consideration of cash or kind and includes deemed gifts and conditions as provided in the Gift Tax Act 1958.
  • From October 1998 To August 2004 any amount received as a gift without consideration, no tax was levied either on the giver or the receiver. This was a period of rampant money laundering.
  • There rules were modified on October 1st 2009 to include Shares and Securities, Jewelry, Paintings, Drawings, Sculptures, and Archeological conditions. In case the aggregate fair value of the benefit received by way of a gift exceeds INR 50000 the gift would be taxable in the hands of the receiver. The'any gift' clause means not only cash but also all gifts of value above INR 50000 are taken into consideration. Let us consider you receive a gift of a house worth 30 Lakhs in the financial Year 2012-2013. Then you are slotted in the highest income tax slab. So tax will be charged at (INR 130000 + 30% of the amount by which the total income exceeds 10 Lakhs).

What Are The Gifts That Are Not Taxed In India?

  • The gifts from parents, parent’s siblings and their spouses, Siblings, Spouse Of Siblings, Daughter and Son, Spouse, Spouses Parents, Spouses Siblings and their respective spouse are not taxable in India. All the above categories are classified as relatives. We need to note that the gifts received by the daughter-in-law from her parents- in- law are tax exempt but the gifts received by a son-in-law from his parents-in-law are taxed.
  • If your relatives such as your sibling is an NRI then gifts received by you from them are tax free. The kind of gifts such as cash or jewellery or the purpose for which the gift is received is immaterial.
  • Gifts given on occasions such as marriage, inheritance via will, gifts from local authorities, gifts from registered Charitable trusts, Non Governmental Organizations, and Education Trust or a University are not taxed.

What Are The Gift Tax Rules In India

  • As per Indian Law no tax is paid if the gift amount, either cash or kind is up to an amount of INR 50000.Let us consider this with an example. Raju was gifted a sum of INR 30000 in cash by his friend Rajesh. He does not have to pay tax on the sum gifted as it is less than INR 50000.Another friend Ravi gifts him INR 40000.The total sum of INR 70000 is now taxable. This amount is added to the income of Raju and he is taxed based on the income tax slab he falls under.
  • Let us consider you want to buy a house. Your father has transferred a sum of INR 30 Lakhs to your account. This money is not taxable under Gift Tax laws. Your father then needs to type a note on a paper which need not be stamped or registered. Your father just needs to mention the name of the person gifted to , the relationship with him/her and can state that this cash is given as love and affection towards my son.
  • If you are gifted even a Crore on the occasion of your marriage by a relative or a non relative you will not be taxed .Typically these gifts are handed a couple of days before or after the day of marriage.
  • If you receive property or cash as inheritance through a will then even if this amount is a Crore you will not be taxed.

Gift Tax On Movable/Immovable Property
Immovable Property

  • Mr Gaurav received property from his cousin without any consideration. The value of the property was 50 Lakhs. A Stamp duty of 2 Lakhs had been payed on this property. Even though Mr Gaurav had received the property as a gift he is liable to pay tax on the stamp duty value since it exceeds INR 50000. This amount is added to the income of Gaurav and he is taxed based on the income tax slab he falls under.
  • If a property is gifted for a consideration, then the actual market value of the property is taxed.

Movable Property

If the movable goods such as a car is gifted and its fair market value exceeds INR 50000 then this fair market is considered for gift taxation .If gifted for a consideration and fair market value exceeds INR 50000 ,then you will have to pay tax on the fair market value minus the consideration amount. Gift of movable property is stamped on a stamp paper by a notary or a court.. In case of immovable property the transfer is done by way of a registered instrument signed on the behalf of the donor .Gift of immovable property which is not registered is not valid as per law and the title cannot be transferred to the receiver.

Which Gifts Are Taxed In India?

  • The gifts received by a son-in-law from his parents-in-law are taxed.
  • The gifts received by minor children will be clubbed with the parents’ income for taxation purposes. In case of clubbing it will be clubbed with the parent having the higher income.
  • Let us consider your friend has a land worth INR 25 Lakhs. He gifts you this land . Both of you agree to undervalue the cost of this land as INR 15 Lakhs. Now you have to pay gift tax only on 15 Lakhs as you are the receiver. The government has land rate records based on the market ready reckoner rates. Now the government using the records catches you and charges tax on the difference between 25 Lakhs and 15 Lakhs which is 10 Lakhs .This amount has to be paid by you as you are the receiver of the land.
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