A very common and frequent question running in the mind of taxpayers is the taxability of gifts. In this part, you can gain knowledge about various provisions relating to taxability of gift received by an individual or a Hindu Undivided Family (HUF) i.e. sum of money or property received by an individual or a HUF without consideration or a case in which the property is acquired for inadequate consideration.

From the taxation point of view, gift can be classified as follows:

  1. Any sum of money received without consideration, it can be termed as ‘monetary gift’.
  2. Specified movable properties received without consideration, it can be termed as ‘gift of movable property’.
  3. 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’.
  4. Immovable properties received without consideration, it can be termed as ‘gift of immovable property’.
  5. Immovable properties acquired at a reduced price (i.e. for inadequate consideration), it can be termed as ‘immovable property received for less than its stamp duty value’

Tax treatment of monetary gifts received by an individual or Hindu Undivided Family (HUF)

If the following conditions are satisfied then any sum of money received without consideration (i.e., monetary gift may be received in cash, cheque, draft, etc.) by an individual/ HUF will be charged to tax:

  1. Sum of money received without consideration.
  2. The aggregate value of such sum of money received during the year exceeds Rs. 50,000.

Though the provisions relating to gift applies in case of every person, but it has been reported that gifts by a resident person to a non-resident are claimed to be non-taxable in India as the income does not accrue or arise in India. To ensure that such gifts made by residents to a non-resident person are subjected to tax in India, the Finance (No. 2) Act, 2019 has inserted a new clause (viii) under Section 9 of the income-tax Act to provide that any income arising outside India, being money paid without consideration on or after 05-07-2019, by a person resident in India to a non-resident or a foreign company shall be deemed to accrue or arise in India.
Cases in which sum of money received without consideration, i.e., monetary gift received by an individual or HUF is not charged to tax
In following cases, monetary gift received by an individual or HUF will not be charged to tax:

Marriage of the individual is the only occasion when monetary gift received by him will not be charged to tax

Gift received on the occasion of marriage of the individual is not charged to tax. Apart from marriage there is no other occasion when monetary gift received by an individual is not charged to tax. Hence, monetary gift received on occasions like birthday, anniversary, etc. will be charged to tax.

Taxability of monetary gifts received from friends

Gifts received from relatives are not charged to tax (Meaning of ‘relative’ has been discussed earlier). Friend is not a ‘relative’ as defined in the above list and hence, gift received from friends will be charged to tax (if other criteria of taxing gift are satisfied).

Monetary gifts received from abroad

If the aggregate value of monetary gift received during the year by an individual or HUF exceeds Rs. 50,000 and the gifts are not covered under the exceptions discussed in earlier part, then gifts whether received from India or abroad will be charged to tax.

Once the aggregate value of gifts received during the year exceeds Rs. 50,000 then all gifts are charged to tax

Sum of money received without consideration by an individual or HUF 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 on the basis of the aggregate value of gift received during the year and not on the basis of individual gift. Hence, if the aggregate value of gifts received during the year exceeds Rs. 50,000, then 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 in excess of Rs. 50,000).

Tax treatment of immovable property received as gift by an individual or HUF

If the following conditions are satisfied than immovable property received without consideration by an individual or HUF will be charged to tax:

  1. Immovable property, being land or building or both, is received by an individual/HUF.
  2. The immovable property is a capital asset within the meaning of section 2(14) for such an individual or HUF.
  3. The stamp duty value of such immovable property received without consideration exceeds Rs. 50,000.