The festive season is all about following rituals, celebrating with your family, friends and relatives by exchanging gifts in cash or kind. The gifts that you receive might not always be tax free. You should be required to pay taxes on them.
Section 56(2) of the Income Tax provides for taxation of gifts received during the year in case aggregate value of all the gifts, whether in cash or in kind during a year, exceed fifty thousand rupees. Gifts received up to ₹50,000 are completely tax free but if this amount is breached, the whole amount of gifts become taxable.
For an instance, if you have received ₹60,000 worth of gifts during a financial year, complete amount of ₹60,000 will be taxable under the head ‘ income from other sources.’
What is defined as a gift?
Money received in cash or by cheque, immovable property such as land or building and movable property such as gold, jewellery, shares etc.
₹50,000 threshold applies to individual gifts or aggregate of gifts?
The taxability of the gift is determined on the basis of the aggregate value of gift received during the year and not on the basis of individual gift. If the aggregate value of gifts received during the year exceeds ₹50,000, then aggregate value of such gifts received during the year will be charged to tax.
How is an immovable property like land and building taxed?
Stamp duty of immovable property is chargeable to tax, if stamp duty value exceeds the consideration value of the immovable property by at least ₹50,000.
If the consideration is ‘zero’ the stamp duty value which exceeds fifty thousand rupees, the stamp duty value of such property will be taxable.
Gifts received from family are tax free
Gifts including immovable property received from relatives are exempt from tax. by virtue of Section 56. Following persons would be considered as relative for this purpose:
(a) Spouse
(b) Brother or sister
(c) Brother or sister of the spouse
(d) Brother or sister of either of the parents
(e) Any lineal ascendant or descendent
(f) Any lineal ascendant or descendent of the spouse
(g) Spouse of the persons referred to in (b) to (f).
Gifts received from friends are taxable.
Some more gifts which are exempt
Gift received only on the occasion of marriage of the individual is not charged to tax. Apart from marriage there is no other occasion in which gift received by an individual is not charged to tax.
Hence, gift received on occasions like birthday, anniversary, etc. will be charged to tax. Gifts received under will/ by way of inheritance and gifts received in contemplation of death of the donor are also tax free.
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