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GIFT TAX UNDER INCOME TAX
Taxation on Gifts is widely deal by section 56(2) under the under the Income Tax Act, 1961 (hereinafter referred to as the Act) which has remained a debatable issue since inception and every year there is some amendment happen in section 56 of the Act. Section 56(2) of the Act does not directly say anything amount the Gift rather it has worded the gift as receipt of any amount without consideration. Under the income tax act 1961 any receipt of amount by any person (w.e.f. 01st April, 2017) exceeding Rs.50,000/- without consideration from any person (subject to few exceptions) is included under the head Income from other sources as taxable income.
RELEVANT PROVISION OF INCOME TAX
Section 56 (2)(x) of the Income tax Act 1961 (with effect from 01st April, 2017) deals with receipt of any amount/asset without any consideration or proper consideration (Gift). Earlier section 56(2)(vii) deals with Gift provisions.
Section 64 of the Income Tax Act, 1961 deals with clubbing of income from assets in case of transfer of such assets without adequate consideration. So, this section deals with clubbing of income, received by spouse, son’s spouse, minor and these members in HUF, in the hand of person who transferred such assets without adequate consideration.
TAX IMPLICATION ON DONOR
Taxation of any amount given by the donor i.e. any gift given by the donor is not taxable in the hands of donor and is specifically not regarded as transfer under Section 47 of the Act. So, any amount given/ asset transferred by the donor without any consideration is not taxable in the hands of donor.
TAX IMPLICATION ON RECEIVER (DONEE)
Taxation of any amount/asset(property) exceeding Rs.50,000 received by any person without consideration is deemed as income in the hands of receiver. Before 01st April, 2017, this provision are applicable only to Individual and HUF (subject to certain exceptions).
Transactions which are included
- Receipt of sum of money exceeding Rs.50,000/- aggregate during the year from all persons.
- Immovable property received without consideration if stamp value exceeds Rs.50,000
- Immovable property where stamp value of such property exceeds consideration by Rs.50,000 or 5% of such consideration (whichever is higher).
- Any property (Shares, jewellery, archaeological collection, paintings, drawings, sculptures, any work of art, bullion) received without consideration if fair market value exceeds Rs.50,000.
- Any property, as mentioned above, where fair market value of such property exceeds the consideration by Rs.50,000.
Meaning of Fair Market Value
In case of any property being shares of a company the fair market value shall be calculated as per provision of rule 11UA of Income Tax Rules, 1962.
Transactions Excluded
- Any amount/property including immovable property received from relative of individual (donee), it is immaterial whether the property or sum of money is received on any occasion of not, until and unless the transaction is genuine. For the purpose of this exclusion meaning of relative is as under:-
In case of individual receiving the gift
| S. No. | Relative as per section | Name of Relative (Donor) | Relevant clause |
| 1 | Spouse of individual | Husband/wife | (i) A |
| 2 | brother or sister of the individual; and their spouse | Brother (Bhai) and his wife (Bhabhi) | (i) B & G |
| 3 | brother or sister of the individual; and their spouse | Sister (Behan) and her husband (Jija) | (i) B & G |
| 4
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brother or sister of the spouse of the individual; and their spouse | Husband’s brother (devar) and his wife (Devrani) | (i) C & G |
| 5
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brother or sister of the spouse of the individual; and their spouse | Husband’s sister (nanad) and her husband (jija). | (i) C & G |
| 6 | brother or sister of the spouse of the individual; and their spouse | Wife’s brother (Sala) and his wife (Salaj) | (i) C & G |
| 7 | brother or sister of the spouse of the individual; and their spouse | Wife’s sister (Sali) and her husband (Saadu) | (i) C & G |
| 8 | brother or sister of either of the parents of the individual; and their spouse | Father’s brother (chacha) and his wife (chachi) | (i) D & G |
| 9 | brother or sister of either of the parents of the individual; and their spouse | Father’s sister (Bua) and her husband (Fufu). | (i) D & G |
| 10 | brother or sister of either of the parents of the individual; and their spouse | Mother’ brother (Mama) and his wife (Mami) | (i) D & G |
| 11 | brother or sister of either of the parents of the individual; and their spouse | Mother’s sister (Masi) and her husband (Masa). | (i) D & G |
| 12 | any lineal ascendant or descendant of the individual; and their spouse | Father (Papa) and Mother (Mumy) | (i) E & G |
| 13 | any lineal ascendant or descendant of the individual; and their spouse | Grandfather (Dada)– Grandmother (Dadi) | (i) E & G |
| 14 | any lineal ascendant or descendant of the individual; and their spouse | Great Grandfather (Par Dada – Great Granddadi (Par dadi) and so on. | (i) E & G |
| 15 | any lineal ascendant or descendant of the individual; and their spouse | Son (beta) and his wife (bahu) | (i) E & G |
| 16 | any lineal ascendant or descendant of the individual; and their spouse | Grandson (pota) and his wife and so on. | (i) E & G |
| 17 | any lineal ascendant or descendant of the individual; and their spouse | Daughter (beti) and her Husband (jawai) | (i) E & G |
| 18 | any lineal ascendant or descendant of the individual; and their spouse | Granddaughter (poti) and her husband. | (i) E & G |
| 19 | any lineal ascendant or descendant of the spouse of the individual; and their spouse. | Father in law (sasur) and Mother in law (saas). | (i) F & G |
| 20 | any lineal ascendant or descendant of the spouse of the individual; and their spouse. | Great Father in Law (dada sasur) and Great Mother in Law (dadi saas) and so on. | (i) F & G |
In case of HUF receiving the gift (Donee)
Any member of such HUF (Donor)
- Any sum of money/ property including immovable property received on the occasion of marriage of individual whether from relative or non-relative.
- Any sum of money/ property including immovable property received by way of a will or by way of inheritance.
- Any sum of money/ property including immovable property received in contemplation of death of the payer (donor) even if such person (donor) survives and did not cancel such transaction.
- Any sum of money/ property including immovable property received from any local authority as defined in explanation to section 10(20) of the Act such as Panchayat, Municipality etc.
- Any sum of money/ property including immovable property received from any foundation, university, fund or education institution or hospital or medical institution mentioned in section 10(23C).
- Any sum of money/ property including immovable property received by or from any trust or society or institution having registration in section 12A or 12AA.
- Any sum of money/ property including immovable property received by any foundation, university, fund or education institution or hospital or medical institution mentioned in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of section 10(23C).
- Any sum of money/ property including immovable property received on account of certain transaction referred to in section 47 (clause (i), (iv), (v), (vi), (via), (viaa), (vib), (vic), (vica) (vicb), (vid) and (vii)).
- Any sum of money/ property including immovable property received by a beneficiary trust from an individual for the benefit of relative of such individual.
So before executing any transactions which are similar to transactions as mentioned above it is advisable to take advisory services from your consultant.
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