Tax Talk: Do you know the instances when gifts can be taxable?

Over the past few years, India has witnessed dramatic changes in its approach towards taxing gifts. The primary legislative intent behind taxing gifts has been to check money laundering activities, especially tackle huge sums of foreign money making its way to India in the guise of gifts. While there were no explicit legislative provisions for taxing gifts, the tax authorities at their own discretion continued to scrutinise their genuineness, and in many cases taxed such receipts in the hands of the recipient.

This had led to an enormous amount of litigation. However, effective financial year 2004-05, the government had brought in necessary amendments such that any gratuitous amounts (barring a few) would be taxable as income from other sources.

Cash as gift
If the aggregate value is less than Rs 50,000 than nothing will be taxable. If value exceeds Rs 50,000, the whole amount will be taxable.

Movable property as gift
Without consideration: Where any person receives from any person or persons any property other than immovable property without consideration, the aggregate fair market value of which exceeds Rs 50,000, the whole of the aggregate fair market value of such property will be taxable in the hands of receiver.

For inadequate consideration: Where any person receives from any person or persons any property other than immovable property for a consideration which is less than the aggregate fair market value of the property by an amount exceeding Rs 50,000, the aggregate fair market value of such property as exceeds such consideration, the excess differential amount will be taxable in the hands of the receiver.

Immovable property as gift
Without consideration: Where any person receives any immovable property without consideration and the stamp duty value of which exceeds Rs 50,000, the stamp duty value of such property will be taxable in the hands of receiver.

For inadequate consideration: Where any person receives any immovable property for a consideration, the stamp duty value of such property as exceeds such consideration, if the amount of such excess is more than the higher of the following amounts:
(i) the amount of Rs 50,000; and (ii) the amount equal to five per cent of the consideration
The excess differential amount will be taxable in the hands of the receiver.

Some exempt gifts
Any sum of money or any property received from any relative; or on the occasion of the marriage of the individual; or under a will or by way of inheritance; or in contemplation of death of the payer or donor or from any local authority or from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of Section 10; etc., are fully exempt from tax.

Relatives means spouse of individual, brother and sister of individual, brother and sister of spouse, brother and sister of either of the parents of the individual, any lineal ascendants or descendants, any lineal ascendants or descendants of the spouse of the individual.

Separately, though gifts to relatives are not covered, adequate precaution still needs to be exercised while gifting assets to specified relatives (such as spouse and children) in view of the specific provisions under the Indian domestic tax laws, whereby, income arising on such gifted assets continue to clubbed in the hands of the donor and taxable in the donor’s hands.

(Source: Tax Guru)