Do you know that some of the expensive gifts that you receive in your marriage are subject to tax? Do you know that the house u got as gift may be subject to tax? Individuals receive gifts from their relatives or friends on different occasions. The gift so received may be taxable in the hands of recipient under Income Tax act. However the taxability depends on the amount and nature of Gifts received. The occasion or the event in which an Individual has received a gift also matters in determining the taxability of the same. In this content we will discuss about taxability of gifts received by an individual during a financial year.
Let us understand the meaning of gift as per income tax act.
- Gift means any sum of money i.e. “monetary gift “received without consideration, the aggregate value of which exceeds Rs. 50,000 whether received in cash, cheque or draft. The whole of the aggregate value of such sum shall be treated as the income for the Individual or HUF.
However there are certain cases in which monetary gift received by an Individual or a HUF shall not be chargeable to tax. The cases are as follows:-
1. Monetary Gift received from a relative – To avoid dodging of taxes by Individuals government has provided a broader definition of relative over here. Relative includes:-
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)
h) In case of HUF, any member thereof
The list is vast this ensures that the immediate family member would be considered as a relative.
2. Monetary Gift received on the occasion of marriage of an individual– Gift received from any person whether being a relative or a friend on the occasion of marriage is exempt.
3. Monetary Gift received under a will or by way of Inheritance– So even if an individual receives a sum of Rs 50, 00,000 or of any amount through inheritance or under will he/she will not have to pay taxes on that amount.
4. Monetary Gift received in contemplation of death of the payer –It means when a person, who is ill and expects to die shortly because of his illness, gives his money to another to keep as a gift in case if he will die because of that illness.
5. Money received from a local authority.
6. 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)
7. Money received from a trust or institution registered under section 12AA
It is to be noted that the taxability is determined on the basis of aggregate value and not on the basis of Individual gift. Let us go through this concept with the help of few examples.
Mr. Ashok has received the following gifts during the FY 2015-16.
- On his birthday a sum of Rs 25000 from his friends.
- On his marriage a sum of Rs 1,45,000
- A sum of Rs 95000 from his father.
- Rs 1, 25,000 from his friend residing in Australia.
Solution: As per the provisions mentioned above regarding the taxability of monetary gift in the hands of Mr. Ashok will be as follows.
- Rs 25,000 have been received from friends so such amount will be taxable under Other Sources.
- Rs 1, 45,000 have been received on the occasion of marriage so such amount will be
- Rs 95,000 received from father will be exempt as father is covered under the definition of relative.
- Rs 1, 25,000 received from friend residing in Australia will be taxable as friend is not considered as a relative.
Since, the aggregate value of gift i.e. Rs 1, 50,000 Rs (25,000+1, 25,000) exceeds Rs 50,000 such amount will be taxable under the head other sources as Gift.
Mr. Pramod has received the following gifts during the FY 2015-16.
1. Rs 17,500 from his friends (being his birthday)
2. Rs 12,500 from his friends
Solution: Since, the aggregate value of gift received by Mr. Pramod in FY 2015-16 does not exceeds Rs 50,000 nothing will be taxable under the head other sources.
- Gift also includes “Immovable property”. An Individual or a HUF may also receive immovable property without consideration. Immovable property received without consideration will be taxable will be taxable if the property so received is a Capital Asset and the Stamp Duty value of the property exceeds Rs 50,000.If an Individual or a HUF receives any Immovable property for a consideration which is less than the Stamp duty value by an amount exceeding Rs 50,000. The (Stamp duty value – Purchase Price) shall be taxable in the hands of Individual receiving the property for such lower consideration.
However the cases under which the gift of Immovable property received by an Individual or a HUF is not taxable is totally similar to the cases mentioned above in Monetary Gift. Let us go through this concept with the help of few examples.
Mr. Rajat has gifted his house to his friend Mr. Rohan. The stamp duty value of the house is Rs 26, 50,000.
Solution: Since, gift is a Capital asset and has been received from friend who is not a relative and the Stamp duty value of the property is exceeding Rs 50,000 the stamp duty value of Rs 26,50,000 will be taxable under the head other Sources for Mr. Rohan.
Mr. Rahul has purchased a land from Mr. Subhash for Rs 10, 25,000. The stamp Valuation Authority has fixed the stamp value of such land as Rs. 11, 25,000.
Solution: In the given case since Mr. Rahul has purchased the property for a consideration which is less than the Stamp duty value by amount exceeding Rs 50,000. Therefore, the difference of Rs 1, 00,000 (Rs 11, 25,000-10, 25,000) will be taxable under the head other sources for Mr. Rahul.
Mr. Udit has received a residential house worth Rs 12, 50,000 as a gift from brother on the occasion of his birthday.
Solution: Gift has been received over here from his brother who is a relative so the amount and the occasion will not matter and the gift so received by Mr. Udit will be exempted.
- Gift also includes any prescribed “movable property” received without consideration the aggregate fair market Value of which Rs. 50,000 the whole of the aggregate fair market value of such property shall be treated as income of the individual or HUF.If an Individual or a HUF receives any movable property for a consideration which is less than the aggregate fair market value of the property by an amount exceeding Rs.50, 000 the aggregate fair market value of such property as exceeds such consideration shall be treated as income of the Individual or HUF.
Prescribed movable property includes hares/securities, jewellery, archaeological collections, drawings, paintings, sculptures or any work of art and bullion, being capital asset of the taxpayer
However the cases under which the gift of movable property received by an Individual or a HUF is not taxable is totally similar to the cases mentioned above in Monetary Gift. Let us go through this concept with the help of few examples.
Mr. Suresh received the following gifts during the FY 2015-16.\
1. Jewellery FMV (Fair Market Value)-Rs.55000
2. Furniture FMV- 90000
3. Bullion FMV- Rs 20000
Solution: In this case furniture received as gift will not be taxable as it not covered under the meaning of prescribed movable property. However Jewellery and Bullion are prescribed movable property and aggregate FMV exceeds Rs 50,000 therefore Rs 75000 i.e. (55000+20000) will be taxable under the head other sources.
Mr. Rajesh purchased the following asset during the FY 2015-16.
1. Gold Jewellery purchased for Rs .2,75,000 the FMV of gold jewellery is Rs 3,25,000
2. Motor Car for Rs 3,00,000 the FMV of motor car is Rs. 5,00,000.
3. Paintings for Rs. 75,000 the FMV of paintings is Rs. 1,00,000
Solution: In the given case Motor car purchased at a lower consideration than the FMV will not be taxable in the hands of Mr. Rajesh as motor car is not a prescribed movable asset. However purchase of gold jewellery and paintings at a lower consideration than the FMV will be taxable under the head other sources as the aggregate amount is exceeding Rs 50000. Therefore Rs .75000 i.e. Rs (50000+25000) will be taxable.