Gift Tax in India: What you need to know!

Hey LinkedIn Fam,

Receiving a gift is always exciting, whether it’s money, property, or something sentimental. ?? But did you know that some gifts might come with a tax bill attached? Understanding the taxation rules on gifts in India is crucial to avoid any surprises! ??

What is Gift Tax in India?

In India, gifts are not always free from tax implications. The gift taxation rules, reintroduced in 2004, state that any gift received without consideration that exceeds ?50,000 in a financial year can be taxed as income under Section 56(2)(vi) of the Income Tax Act. This applies to both cash and non-cash gifts, including property and valuable items like jewellery. ??

Who Needs to Pay Gift Tax?

If you receive a gift exceeding ?50,000 from someone other than a close relative, you must declare this in your income and pay the applicable tax. The tax rate is based on your income tax slab, which could range from 5% to 30%, depending on your total income for the year. ??

However, gifts from blood relatives, gifts received on the occasion of marriage, or those passed down through inheritance are generally exempt from this tax. To avoid scrutiny from tax authorities, it’s advisable to maintain proper documentation for significant gifts. ??

Who Are Considered Close Relatives?

The term "close relatives" is crucial because gifts received from them are generally exempt from tax. According to the Income Tax Act, close relatives include:

• Your spouse
• Your brother or sister
• Your spouse’s brother or sister
• Your parents or your spouse’s parents
• Any lineal ascendant or descendant (like grandparents or children)
• The spouses of the relatives mentioned above

Gifts received from any of these close relatives are not taxable, regardless of the amount. ??

Example: If you receive a gift worth ?1 lakh from a friend, ?50,000 will be added to your income and taxed according to your income slab rate.

Key Exemptions to Remember ???

There are several exemptions where gift tax does not apply:

• Gifts from close relatives: Any amount received from defined close relatives is tax-free.
• Marriage gifts: Gifts received during a wedding are exempt.
• Inheritance: Gifts received as inheritance or through a will are also exempt.

For more detailed information, check out our blog - Rules For Taxation Of Gift In India.

Stay Informed About Gift Tax Rules

While receiving a gift is a joyous occasion, understanding the tax implications is vital. If you’re planning to give or receive a substantial gift, ensure you are aware of the tax rules to avoid any issues later. Proper planning can help you enjoy your gifts without the burden of additional taxes.

Share this newsletter with your friends and family to help others stay informed about the taxation rules on gifts in India! ??

Ruchira

Editor, The Success Circle