Gifts transactions are not taxable in the hands of the donor. For a donee, the gift deed transfer is taxable, but there are exceptions.
Gifts are prevalent among family members or close relatives. It is one way of expressing love and affection. People also make gifts to save taxes as some of the Gift transactions are fully exempted from taxation.
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A person may gift any of the following:
- Moveable property
- Immoveable property
A person may be an individual, HUF or an artificial juridical person like a company/firm.
In India, we had a Gift Tax Act under which tax was levied on the gift. The donor had to pay the tax. But the said legislation was abolished. Now a provision has been made in the Indian Income Tax Act 1961, for taxing the gift transactions. The recipient of the gift has to pay tax.
The gift transaction is tax-free under certain circumstances:
Gift of Cash:
If the aggregate value of the cash received in gift exceeds Rs 50,000 in a financial year, the recipient has to pay the tax on the amount received. The said amount is counted as his income under the head Income from other sources.
Gift of property:
- The gift deed of immovable property has to be registered. The stamp duty is paid at the time of registration based on the market value of the property. The stamp duty payable differs from state to state.
- If the property is received as a gift without consideration, the recipient pays the tax if the stamp duty value of the property exceeds Rs 50,000/-.
- If the property is received without adequate consideration, the recipient pays the tax if the stamp duty value exceeds consideration amount by Rs 50,000/-.
- In the case of moveable property like shares, jewellery, etc., the recipient pays the tax if the fair market value of the property exceeds Rs 50,000/-.
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Some gifts are tax-free:
- Any amount of gift if received from the relatives as defined in the Income Tax Act. A relative is specified in the Act and can be the spouse, sibling, sibling of the spouse, sibling of either parent, etc.
- For NRIs and PIOs, the rules of FEMA will also apply. The definition of relatives is narrower under FEMA. For NRIs as a recipient, rules of remittance have to be kept in mind. The resident Indian who wants to gift an amount to an NRI, the said amount cannot exceed the permissible limits of remittance.
- Gift received on the occasion of marriage.
- Gift received under Will or inheritance
- Gift on the contemplation of death of the donor
- Gifts received from any fund, foundation, medical institution, educational institution or university, or any charitable or religious trust. Gifts received from any person by the said institutions are also exempted. Such foundation, institution etc. must be registered under the Income Tax Act.
A person can use provisions relating to gifts for tax planning. These are certainly not meant for evading taxes.