When we talk about Income tax on the Gifts received, few questions that comes to our mind are about the rules which can make us exempt from such tax liability. ave you ever thought about the taxes you have to pay, when someone deposits some money in your bank account? How many of us think about the taxes we have to pay on loans which we often take from our friends and return back? Several times our parents do that for us, they transfer some money to our account as we want to pay the down payment of our house, but how many of us ever give it a thought if we have to pay taxes on that amount or not?
In this article we will see the rules set out by Income Tax department on gifts received from relatives or other people in India.
Section 56(2) says, any sum of money exceeding Rs. 50,000 received without consideration by an individual or an HUF from any person is chargeable to tax as income under “other sources” subject to some exclusion.
Gift tax rules and exclusions:
Upto Rs 50,000/year is not taxable
If the amount of the gift is up to Rs 50,000 in a year, you don’t have to pay tax on that. But if someone gifts you another Rs10,000, i.e., you now have a total of Rs 60,000 in the same year. You have to pay tax on this Rs.60,000.
Any amount received by relatives is not taxable
You don’t have to pay tax on amount received from specified relatives in form of cheque, cash or in consideration.
The list of ‘relatives’ for this is as following
- Your spouse
- Your brother or sister
- Brother or sister of your spouse
- Brother or sister of either of your parents
- Any of your lineal ascendant or descendants
- Any lineal ascendant or descendant of your spouse
- Spouse of the persons referred in above points
Note: A woman invests Rs 10,00,000, which she got from her husband as gift. If any interest is generated from this amount then it will be clubbed with husband income. It is important to note that here income clubbing provisions may apply.
Any amount received as Wedding Gift is not taxable
Any amount received as wedding gift from relatives and non-relatives is not taxable in your hand. So you may enjoy the start of your married life without any worries of Income Tax.
Gift Tax on Movable/Immovable properties
In gifting immovable properties valuation aspect is involved
- If the property is gifted without any consideration then if the stamp duty value exceeds Rs. 50000/-, stamp duty value will be taken
- The actual value of the property will be considered, if the property is gifted for a consideration.
In case of other properties:
- If gifted without consideration and fair market value exceeds 50,000, then the fair market value will be taken as the final value
- If gifted for a consideration and the Fair Market Value (FMV) less consideration is greater than 50000, then the FMV less consideration amount will be taken as the value of the gift.
Amount received through Will or Inheritance is not taxable
Any amount of money or any property received under a will or by way of inheritance is totally not taxable.
Be careful about the give and take transactions
You should always keep a check on the give and take transaction made by you through your bank account. Keeping ATM receipts and credit card statements in case of bigger amount would be beneficial in future, if income tax department ever come back to you. Remember, Income tax Department may ask details about this even after 8 years.
How to document Gift transactions, Registered Deed or plain paper?
A deed, that is executed and delivered in which the donor transfers title to the receiver without any payment or considerations, is termed as a gift deed. It is a document which transfer the legal title of the property to the donor, where the consideration is not monetary but is made in return for love and affection.
When it is required to be stamped OR get registered?
Gift deed is not compulsory on gifts made by way of cash or cheque. You may simply consider the names of the persons, their relationship and the gift being given out of love and affection, on a plane paper. It is not required to be stamped or registered.
Gift made by way of movable property is required to be made in stamp paper and stamped by the notary or court, gift deed is not required to be registered. Gift of immovable property which is not registered is not valid as per law and cannot pass any title to the receiver; the transfer must be effected by a registered instrument signed by or on behalf of the donor.
Though it is part of our Indian culture to give and take gifts however It is always good to get your transactions documented with proper signatures. This will help you with income tax scrutiny, if it happens.