I think most taxpayers only know about taxes on income they receive from their employer, but do you know that taxes on gifts are also there, yes you heard correctly gifts also attract income tax if they exceed a particular value and if you received it from some specific group of people. Let’s find out the taxation on gifts received from family, relatives, friends etc. We will also find out how much you will be taxed and at which amount.
From the taxation point of view, gifts can be classified as follows:
1. Any sum of money received without consideration, can be termed as a ‘monetary gift’.
2. Specified movable properties received without consideration, can be termed as a ‘gift of movable property’.
3. Specified movable properties received at a reduced price (i.e. for inadequate consideration), can be termed as ‘movable property received for less than its fair market value’.
4. Immovable properties received without consideration, can be termed as a ‘gift of immovable property’.
5. 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’.
When Tax on Gifts Not Charged
Gifts received from relatives are not charged to tax. We have specified below who comes under the relative category. One more thing in this case friends are not relatives as explained in the above list and hence, gifts received from friends will be charged to tax (if other criteria of taxing gifts are satisfied). Gifts received during the marriage are generally exempt from tax. This exemption extends to gifts received from relatives, friends, or even colleagues. Further, birthday is not covered in the list of prescribed occasion on which gift is not charged to tax and hence, gift received from friends will be charged to tax.
Who Comes Under the Definition of Relatives
Relative for this purpose means:
- Spouse of the individual.
- Brother or sister of the individual.
- Brother or sister of the spouse of the individual.
- Brother or sister of either of the parents of the individual.
- Any lineal ascendant or descendant of the individual.
- Any lineal ascendant or descendent of the spouse of the individual.
- Spouse of the persons referred to in (2) to (6).
Gift on Marriage
Gifts received during the marriage are generally exempt from tax. This exemption extends to gifts received from relatives, friends, or even colleagues. Apart from marriage, there is no other occasion when a monetary gift received by an individual(other than relatives) is not taxed. Hence, monetary gifts received on occasions like birthdays, anniversaries, etc. will be charged to tax.
When Gifts are Charged to Tax
If an individual receives gifts from non-relatives(As explained above) that exceed a specified value in a financial year, the value of such gifts may be considered as income and could be taxable. The sum of money received without consideration by an individual is chargeable to tax if the aggregate value of such sum received during the year exceeds Rs. 50,000. The important point to be noted in this regard is the “aggregate value of such sum received during the year”. The taxability of the gift is determined based on the aggregate value of the gift received during the year and not based on individual gifts. Hence, if the aggregate value of gifts received during the year exceeds Rs. 50,000, then the total value of all such gifts received during the year will be charged to tax (i.e. the total amount of gift and not the amount above Rs. 50,000). The aggregate value of gifts will be added to your income and it will be taxed as per your tax slab, if you come under the 30% tax bracket then it will be taxed at a 30% rate.
Example Explaining the Tax
Consider the example of Mr. Deepak who received the following gifts during the financial year 2023-24:
- Rs. 2,00,000 from his friend residing in the US.
- Rs. 25,000 from his elder sister residing in Delhi.
- Rs. 25,000 from one of his friends residing in Mumbai (received on the occasion of the birthday of Mr. Deepak).
What will be the tax treatment of the above items in the hands of Mr. Deepak? The sum of money received without consideration (i.e. gift) by an individual person other than a relative and otherwise than on prescribed occasions (As we have discussed) is charged to tax, if the aggregate amount of such gift received during the year exceeds Rs. 50,000. Considering the above factors, the tax on the gifts in the hands of Mr. Deepak will be as follows:
- Rs. 2,00,000 received from his friend will be fully taxed because the friend is not covered in the definition of ‘relative’.
- Rs. 25,000 received from the elder sister will not be charged to tax because the elder sister is covered in the definition of ‘relative’.
- Birthday is not covered in the list of prescribed occasions on which gift is not charged to tax, hence Rs. 25,000 received on the occasion of birthday will be fully taxed.
Words of Wisdom
“The four most dangerous words in investing are: ‘this time it’s different.” ― Sir John Templeton
Key Takeaways
- Tax on gifts will not charged if the gifts are given by relatives.
- Friends do not come under the category of relatives.
- Gifts received in marriage will not be taxed.
- Tax will be charged for gift value.
- Gifts received during the year will be taxed on their total value if their combined value is over Rs. 50,000 (i.e. the total amount of the gift and not the amount above Rs. 50,000).
Conclusion
In conclusion, understanding the tax implications of gifts is important. Gifts are not taxed if received from relatives or received on some special occasion. Gifts from non-relatives may be considered income if they exceed a specified value. Gifts during marriage are generally exempt. If the aggregate value of gifts received during the year exceeds Rs. 50,000, then the total value of all such gifts received during the year will be charged to tax. However, nothing will be charged to tax, if the aggregate amount of gift received during the year does not exceed Rs. 50,000.
Thank you for taking the time to read this blog post! I hope you found the information helpful and informative. If you have any thoughts or feedback, I’d love to hear from you in the comments section below. You can also follow me on social media to stay up to date with my latest posts and updates.
References
- Income Tax Department
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