Gift Under The Income Tax Act In India
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There was no tax charged on gifts that were given in between the years 2003 and 2004. But according to the provisions of the Income Tax Act, gifts after 2004 were taxable.
In other words, any items that a person receives as a gift during any occasion will be taken as income, and tax will be charged on it.
If an amount of 50000 is gifted in any form, such as cash or check to someone, then it will be taken as income and would be taxable.
Here are some terms, such as relative and gifts, that ESPECIA explains as per the Income Tax Act. Also, exemptions for tax on a gift under the section are stated.
Gift under income tax act
A gift under the income tax act is defined as a property that can be movable or immovable and a draft, cheque, or cash that someone receives without any consideration.
To understand the concept of gift as per the income tax Act, it is important to understand movable and immovable property.
- Immovable property: immovable property or immovable gift includes properties such as a building or land. Immovable properties don't include agriculture properties that are available in rural areas.
- Movable property: movable properties or movable gift includes properties such as pieces of jewellery, art, painting, drawing, vehicles, and others.
Definition of relative as per income tax act
According to the income tax act, a relative is a person who is:
- Spouse or married partner of an individual person.
- Brother, sister, and spouse of both sides of the married couple.
- Brother as well as a sister (and their spouse) of the mother or father of both sides of a married couple.
- Any descendant or ascendant, including their spouses of the individual.
- Any descendant or ascendant and their spouses of both sides of the married couple.
Taxation of gifts under the income tax act of India
India has diversified culture as well as customs. The families in India are large and have many reasons to celebrate their traditions and festivals.
During these festivals and occasions, a common exchange of gifts occurs. However, these gifts have greater significance than love and social status.
The exchange of gifts can also be a part of tax planning as well as tax invasion.
Explaining has a proper framework and regulations to follow. However, tax invasion is against the law and can result in penalties.
The taxes on gifts were introduced in April 1958. The rules and laws for the taxes on the gift are regulated by Gift Tax Act, 1958, or The GTA.
The main objective of this law is to impose taxes on certain giving and receiving gifts under different circumstances. Gifts in different forms, such as land, cash checks, pieces of jewellery and others, are covered in this law.
But the gift tax act or GTA was abolished in October 1998. Every kind of gift was made free when this happened. But rules and regulations for tax on gifts were reintroduced in 2004.
These rules and regulations came under the Income Tax Act. These provisions' main aim or objective was to avoid unwanted tax overflow and outflow. Certain provisions exist as per the definition of gifts from relatives income tax act.
The laws for the exchange of gifts were amended in 2017. According to this law, any property gifted from one person to another should be taxed in the hands of the recipient.
These items are taxed on normal tax rates concerning Income from other sources.
According to the latest provisions of the Income Tax Act 1961, any amount or property which has been received by a person who accounts for more than 50,000 rupees from a person who is not related to the financial year will be included in the total income of that person and will be taxed.
For example, if a person receives a cash amount of 60,000 from their father, then it will not be taxed.
However, if a person receives the cash amount of Rs 60,000 from his friend, then it will be taxed. The provisions for tax on gifts received by a person are mentioned below.
Kind of gift received
Threshold in terms of money
Any amount of money for the gift received by a person without consideration or inadequate consideration
Total amount should be more than 50,000 rupees.
The entire amount of money received in this case is taxable
Any amount of immovable property, such as land or building, which a person receives without consideration or inadequate consideration
The stamp duty value should be more than 50,000 rupees
The value of stamp duty on the property is taxable
Other immovable properties which a person receives with inadequate consideration
The stamp duty value for consideration is more than 50,000 rupees
The value of stamp duty is subtracted from the consideration amount. For example, the value of stamp duty is 2 lakh rupees, and the consideration amount is 75,000 rupees. Therefore the final taxable amount will be 1.25 lakh rupees.
Any property such as pieces of jewellery, drawing arts, and similar items received by a person without any consideration
Fmv or fair market value is more than 50,000 rupees
Fair market value of the property
Any property other than above mentioned immovable property received with consideration
Share market value is more than consideration by 50,000 rupees
Fair market value subtracted from the consideration about. The same example is mentioned above.
Stamp duty and provisions
Provisions that are related to the consideration and stamp value are mostly based on section 50c. These provisions related to tax law are given below.
- Stamp value is the main value that is to be considered for computing tax on gifts related to immovable property. There can be various reasons that can result in an increasing amount of stamp value. One of the main reasons for an increased amount of stamp value is a time delay between registration as well as the date of the agreement. The value of stab duty is considered on the date of the agreement if the following conditions are satisfied.
- The date of the agreement and the date of registration are different.
- Uninstalling of consideration or full consideration is paid through check or draft from Bank using an electronic mode. This should be done before the date of registration of the agreement.
- If the person has violated the stamp value provisions mentioned in section 50c, the tax officer is required to inform the valuation officer about the situation immediately. All the records are called, and the step taken is informed to the person in writing. In such cases, the value of the stamp is required to be lower than the exact amount that the valuation officer issues.
Gifts from relatives are exempt under section and gift tax.
As it is mentioned above, gifts received from certain people are taxable. But here are some exceptions for gifts received by relatives and other individuals. Take a look at these exceptions.
- For any relative under the definition of relative as per income Tax Act gifts anything to any individual, no tax is charged.
- If any gift is given by any other individual other than relative to the marriage of a person, then no tax is charged.
- If a gift such as a building or a piece of land is gifted by a person to another person as stated in a will or as a part of an inheritance, then no tax is charged.
- If a person gifts property to another person or individual as in agreement for the death of the donor or payer, then no tax is charged.
- If any property is gifted by a local authority, such as a municipal board, municipal committee, Panchayat, and others, to any other individual, then no tax is charged.
- If any property is gifted by a fund, University medical institution, hospital, etc., to an individual, then no tax is charged.
- No tax is charged if any property is gifted by a charitable trust or religious trust to any individual.
- If HUF gifts any property to other members of HUF as a part of the distribution or partition of assets, then note tax is charged.
- No tax is charged if any individual gifts property to a charitable trust, institution, University, religious trust, etc.
- If a property is gifted to any trust that is specially built to benefit the relative of the person, then no tax is charged.
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A Relative can be a brother, sister, mother, father, ascendant descendant, or spouse of the individual.
A gift is any movable or immovable item that is gifted to a person during any occasion or festival.
Simply put, when any gift exceeds the value of 50,000 rupees, it will be counted as income and will become taxable.
However, there are a few conditions or exemptions where this policy is not applicable.
FAQs Related to Income Tax on Gift and Taxability of Gifts
1. Are gifts from relatives taxable?
Gifts received from everyone are taxable. If the total amount of gift received exceeds 50000 rupees, then it will be included in income and become taxable. However, a gift from relatives is exempt under the section only for closer relatives such as the father, mother, spouse, siblings, and others of the individual.
2. Gift from relative exempt under which section?
Gift from relatives exempt under section 56 of the Income Tax Act from tax. Such relatives include the father, mother, spouse, siblings, ascendant, descendant, siblings of the individual's parents, etc.
3. What is Section 56 gift relative?
According to section 56, the gift from relative income tax act is fully exempted. But these relatives are only Limited as per the Income Tax Act.
4. What if a gift is received from a non-relative for Rs 50000?
If an individual receives a gift from a non-relative person of 50000 or above, it will be covered as income from other resources and become taxable.
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