Gifts Tax: Know which gifts are taxable this festive season | TAX SAVING

Diwali Gift Tax Rules: Gifting is a big part of the festival season in India and as the festival season is around the corner, one should know that certain gifts can attract taxes. Government in 1998 had abolished tax on gifts but reintroduced it in 2004 in a new form and included the same in the Income Tax provisions.

What is termed a gift?
The definition of gift is categorised into five-

Any sum of money received without consideration; it can be termed as ‘monetary gift’. 

Specified movable properties received without consideration, it can be termed as ‘gift of movable property’.  

Specified movable properties received at a reduced price (i.e. for inadequate consideration), it can be termed as ‘movable property received for less than its fair market value’. 

Immovable properties received without consideration, can be termed as ‘gift of immovable property’. 

Immovable properties acquired at a reduced price (i.e. for inadequate consideration), can be termed as ‘immovable property received for less than its stamp duty value’.

Gift from who is non-taxable?
1) Money received from relatives to an individual — which includes money received from any blood relative, this does not include cousins and friends. 

Relatives are termed as-

a. Spouse of the individual; 

b. Brother or sister of the individual; 

c. Brother or sister of the spouse of the individual; 

d. Brother or sister of either of the parents of the individual; 

e. Any lineal ascendant or descendent of the individual; 

f. Any lineal ascendant or descendent of the spouse of the individual; g.Spouse of the persons referred to in (b) to (f).

In which situation gifts is non-taxable-
1. Money received on the occasion of the marriage of the individual. (on other occasions like birthday, anniversary etc the gifts will be taxable)

2. Money received under will/ by way of inheritance. 

3. Money received in contemplation of death of the payer or donor.

4. Money received from a local authority [as defined in Explanation to section 10(20) of the Income-tax Act]. 

5. Money received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C). [w.e.f. AY 2023-24, this exemption is not available if a sum of money is received by a specified person referred to in section 13(3)] 

6. Money received from or by a trust or institution registered under section 12A, 12AA or section 12AB 

7. Money received by any fund or trust or institution, any university or other educational institution or any hospital or other medical institution referred to in section 10(23C)(iv)/(v)/(vi)/(via).  

8.Money received as a consequence of demerger or amalgamation of a company or business reorganisation of a co-operative bank under section 47.

The provisions relating to gift tax have been dealt with under Section 56(2)(x) of the Income-tax Act, 1961. The below table explains what gifts are taxable

Kind of gift covered	Quantum taxable
Sum of money	1. The whole amount if the same exceeds Rs 50,000. 2. Also, tax will be applicable if the gift money exceeds Rs 50,000 in a year
Movable property without consideration	The fair market value of the property if it exceeds Rs 50,000
Movable property for inadequate consideration	The difference between the fair market value of the property and the consideration if such difference exceeds Rs 50,000
Immovable property without consideration	The stamp duty value of the property if it exceeds Rs 50,000
Immovable property for inadequate consideration	The difference between the stamp duty value of the property and the consideration if such difference is more than higher of (a) Rs 50,000 and (b) 10% of the consideration