Law Relating to Gift Tax in India

Law Relating to Gift Tax in India

In the earlier times in India cash gifts of up to Rs 50,000 were tax free but if the gift was more than Rs 50,000, then the entire amount were taxed. Now rules on gifts tax have been changed in the recent times. Today when one makes a gift either in cash or in kind, it might give rise to a tax liability. Under the present law if any gift received in cash or kind exceeds Rs.50, 000 or purchase of movable or immovable property for inadequate payment, the same is taxed. It is taxed under the head “income from other sources.”

Which kinds of gifts are tax free?

The above rule does not apply to gifts received from relatives. Gifts received on occasion of the marriage of the individual or that received under a will or by way of inheritance or that received in contemplation of death of the payer or any local authority, trust or university etc. are tax free.

If someone is getting married, the gifts received on the occasion will be tax free. Similarly gifts received by inheritance are tax free too.

Class of people considered as relatives:

A relative can be Spouse of the individual, brother or sister of the individual, spouse or of parent, lineal ascendants or descendants of individual or of spouse, spouse of person referred to in above last two categories.

What are movable and immovable properties?

Land or buildings, Shares and securities, Jewellery, Archeological collection, Drawings, Paintings, Sculptures, Any works of art are treated as property in the eye of law.

While receiving a gift, it’s always advisable to the done to get a gift deed signed by the donor.  The same can be used as evidence in investigation by the tax department.

Some illustrations of how the law is?

Where this is a gift of an immoveable property between spouses nothing is taxable.  A man gives a gold necklace worth Rs 80,000 to his fiancé the same is taxable in the hands of the recipient. If the two were married, then no tax would have been payable.

Some precautions to be taken in making gifts:

Care should be taken when making a gift to a spouse as the income earned from the gift will be clubbed with your income