Regulations Related to Gift Tax in India

Regulations Related to Gift Tax in India

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Jaya
Jaya Sharma
Assistant Manager - Content
Updated on Jan 22, 2024 19:06 IST

The gift tax in India was brought into effect in 1958. However, it was abolished in the year 1998. Later in 2004, it was reintroduced as a tax on 'income from other sources'.

gift tax in india

Table of Contents

What is Gift Tax?

Before we talk about gift tax, we need to understand the definition of a gift. According to IRS, a gift is anything of value given to another person without receiving anything of the same value in return. Gift tax is a direct tax part of the Income Tax Act.

Any gift with a cost above 50,000 rupees is taxable at normal tax slab rates. It is known as 'gift tax'. This federal tax is imposed by the Internal Revenue Service (IRS) on individual taxpayers. This may include cash, property or real estate. Any amount above this threshold shall be reported and applied towards a lifetime gift tax exemption.

As per the Income Tax Act, examples of taxable gifts in India include the following:

  • Any amount of money received without consideration is termed as ‘monetary gift’.
  • Specified movable properties received without consideration, are termed as the ‘gift of movable property’.
  • Specified movable properties received at reduced price (for inadequate consideration), it is termed as ‘movable property received for less than its fair market value’.
  • Immovable properties received without consideration are termed as a ‘gift of immovable property’.
  • Immovable property at a reduced price (i.e. for inadequate consideration) are termed as ‘immovable property received for below its stamp duty value’.

Regulations Related to Gift Tax in India

The following table indicates the types of gifts that are covered under gift tax:

Kind of gift covered

Monetary threshold

Quantum taxable

Any sum of money without consideration

Sum greater than 50,000

The entire sum of money received

Immovable property such as building, land, etc. without consideration

Stamp duty value* > Rs 50,000

Stamp duty value of property

Immovable property for inadequate consideration

Stamp duty value* exceeds consideration by more than Rs 50,000

Stamp duty value without consideration 

Example 1: Stamp duty value is Rs 2,00,000 and consideration is Rs 75,000. The taxable amount is Rs 1.25 lakh (stamp duty value exceeds consideration by > Rs. 50,000)  

Example 2 In Example 1, if consideration is Rs 1,60,000, the taxable gift is Nil since stamp duty value does not exceed consideration by more than Rs 50,000.

Any property (jewellery, share,  drawings, etc.) except immovable property without consideration

Fair market value (FMV) is more than Rs 50,000

Fair Market Value of such property

Any property except immovable property for consideration

FMV exceeds consideration greater than Rs 50,000

FMV without consideration (Same in the case of immovable property can be referred.)

*Value considered by stamp duty authority 

Example Demonstrating Gift Tax

Priya, an Indian resident, receives a gift of INR 7 lakh from her friend, Maya, in July 2024. 

Priya wants to understand her potential gift tax liability.

Gift Tax Rules in India:

  • As of April 1, 2023, the annual gift tax exemption limit in India for individuals is INR 50,000 per donor. This means Priya won't pay tax on the first INR 50,000 received from any source in a year.
  • Gifts exceeding the exemption limit from non-relatives are taxable for the recipient at standard income tax rates based on their tax slab.

Tax Calculation:

  1. Taxable Gift Amount: Since the gift amount (INR 7 lakh) exceeds the exemption limit by INR 7 lakh - INR 50,000 = INR 6.5 lakh, this portion is taxable for Priya.
  2. Tax Impact on Priya: Priya needs to determine her applicable income tax slab for the financial year (2023-2024). Let's assume she falls into the 20% tax bracket.
  3. Gift Tax Liability: Applying the 20% tax rate to the taxable amount, Priya's gift tax liability would be INR 6.5 lakh * 20% = INR 1.3 lakh.

Process of Declaring Gift Tax

According to the Gift Tax Act of 1958, gift tax payment was earlier the duty of the person giving the present. As per the current Income tax rules, this comes under direct tax. According to this rule, the gift recipient will be responsible for making the tax payment. The value of the gift needs to be declared by the receiver during the filing of the Income Tax return under 'income from other sources'. This makes the taxable value of the gift a part of the income of the gift receiver for that financial year. 

About the Author
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Jaya Sharma
Assistant Manager - Content

Jaya is a writer with an experience of over 5 years in content creation and marketing. Her writing style is versatile since she likes to write as per the requirement of the domain. She has worked on Technology, Fina... Read Full Bio