People exchange gifts on Diwali, Durga puja, marriage and on different occasions in India. Before receiving any gift from your relatives you should know the tax implications of it.
Not all gifts received by you are exempted from income tax. In this article, we will be discussing tax implications on gifts.
In order to know the tax implication, you first have to find out three things: the value of the gift and from whom you received it, and the occasion on which it’s gifted.
As per section 56, gift is taxable in the hands of recipients under the head income from other sources if certain conditions to the section are fulfilled. According to this section, gift received by an individual or a Hindu undivided family is taxable if the aggregate value of such gifts received during the previous year is Rs 50,000 or more.
As per income tax provisions, if the value of the gift exceeds 50,000 rupees in a financial year, then it will be taxed.
It’s the receiver of the gift who is required to calculate and pay tax according to the provisions of the tax laws. In this article we will be discussing how to calculate tax on gift for the financial year 2022-23 (assessment year 2023-24) and financial year 2023-24 (assessment year 2024-25).
Tax on Cash Gift
If the aggregate value of cash gifts received without consideration is Rs 50,000 or more during a financial year, then the whole amount will be taxable in the hands of recipients in the same year in which its received.
For instance, if you have received a cash gift of Rs 1,50,000 in the previous year 2023-24 (assessment year 2024-25), then the whole amount will be taxable as income under the head other sources for the FY 2023-24.
Tax is determined on the basis of the aggregate value of gift received during the financial year and not on the basis of individual gift. If the aggregate cash value for a financial year is less than Rs 50,000, then it would be exempted from tax.
Gift received from employer
As per rule 3(7)(iv), the value of any gift provided by employer to the employee or any member of his household on ceremonial occasions or otherwise shall be considered as perquisite. In this case, a sum equal to the value of such gift will be considered as taxable value of perquisite.
If the employer has provided any voucher or token in lieu of such gift, then value of such voucher or token shall be taken as the value of perquisite.
However, if the value of such gift, voucher or token as the case may be is below Rs 5,000 in aggregate for the whole previous year, then the value of such perquisite shall be taken as nil.
Which means, as per income tax provisions, if a gift received from an employer exceeds 5,000 rupees for a financial year, then it will be taxable. Gifts from employer will not be taxable if the value is less than 5,000 in a given financial year.
If the value of gift from employerb is more than 5,000 rupees, then in order to find out the taxable value, you need to deduct 5,000 rupees out of the actual value; the balance will be taxable during the financial year.
Tax on property gift
Instead of cash, if you have received immovable property as a gift without consideration, then it will be taxable in your hand under the head income from other sources when stamp duty value of the property is Rs 50,000 or more.
In case inadequate consideration is received and the difference between such consideration and stamp duty value exceeds higher of Rs 50,000 and 5% of the consideration for the financial year, then such difference amount will be taxable in the hands of recipient under the head income from other sources.
The Stamp Duty Value is nothing but the value of the property adopted by stamp valuation authorities for determining the stamp duty. Stamp duty value on the date of agreement may be taken if-
- Date of agreement for fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same,
- Consideration or part thereof has been paid by way of an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account on or before the date of agreement for transfer of such immovable property.
If the stamp duty value of immovable property is disputed by the assessee on grounds mentioned in section 50C(2), the assessing officer can refer the valuation of such property to a valuation officer.
Let us understand the concept with the following example:
- Consideration amount is Rs 2,00,000
- Stamp duty valuation is Rs 5,00,000
- Financial year in which its received – 2023-24
In this case, the value of the gift = Rs 5,00,000 – Rs 2,00,000 = Rs 3,00,000. In our case the value (Rs 3,00,000) exceeds the higher of below two figures;
- 5% of the consideration = Rs 2,00,000*5% = Rs 10,000
- Rs 50,000
Therefore taxable value of gift for the year 2023-24 is Rs 3,00,000.
Gifts from relatives
In order to know the provisions of income tax on gifts received from relatives, you have to refer to section 56(2) of the Income tax act, 1961.
As per section 56(2), if a gift is received from following persons then it will not be taxable irrespective of the value of the gift.
- spouse,
- siblings,
- siblings of spouse,
- parents of individual,
- brother or sister of either of the parents,
- Lineal ascendant/descendant (and their spouses) of the individual, and
- lineal ascendant/descendant (and their spouses) of the individual’s spouse
Which means, if a gift is received from above relatives including your grandfather and grandmother, then it’s exempted.
Please note, cousin is a relative as per the above section. Therefore, any gift received from your cousin above the value of 50,000 rupees, will attract income tax during the financial year.
In case of HUF, any member will be considered as relative.
Value of gift in case of certain specific movable property
In case of certain movable property, following valuation methods need to be applied;
- In case of without consideration, if the aggregate fair market value exceeds Rs 50,000, the whole of the aggregate fair market value of such property.
- In case of 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.
In following movable assets, you need to consider the fair market value and above rules;
- Jewellery
- Painting
- Drawing
- Share and securities
- Archaeological collections
- Sculptures
- Bullion and
- Any artwork
If you have gifted a car to your friend, then it will not taxable as car is not notified as a property under section 56 of the income tax act, 1961.
Gift received on your marriage
Any monetary gift received by you on the occasion of your marriage will not be taxable.
Section 56 (2) of Income tax act specifically excluded certain gift items out of chargeability of tax. Gift received during a marriage is also one of such items specified in the exempted list of the above section.
According to the provision, any gift received during your marriage will not be charged to tax. If you have received any gift during your engagement then that will be chargeable to tax, as it is not excluded from section 56 (2).
When Gift received is not taxable
In following cases gift will not be subject to income tax;
- if the aggregate value of gifts is up to Rs 50,000 for the financial year.
- Gift received on the occasion of marriage from relatives and non-relatives. In this case we do not have any upper or lower limit.
- Gift received from a relative during the financial year, it has no upper limit.
- Gift received under a will or by way of inheritance or in contemplation of death of the payer.
- Money received from a local authority as defined under section 10(20) of the Income-tax Act.
- 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).
- Money received from or by a trust or institution registered under section 12A or 12AA by any fund or trust or institution or university or other education institutions or any hospitals or other medical institutions referred to in section 10(23)(C)(iv) or (v) or (vi) or (via); or by way of transaction not regarded as transfer under section 47(I) or (vi) or (via) or (viaa) or (vib) or (vic) or (vica) or (vicb) or (vid) or (vii); or from an individual by a trust created or established solely for the benefit of relatives of the individual.
Please note, last six rules applies irrespective of its value.
Important points explained
The total value of the gift received by the recipient for the financial year is counted to know whether it exceeds Rs 50,000 or not. For example, if the assessee has received Rs 49,000 from Mr A (friend) and Rs 41,000 from Mr B (friend) during the year 2023-24, the limit of Rs 50,000 would be considered as breached for the financial year 2023-24 (assessment year 2024-25). In this case the entire amount of value of gift i.e. Rs 90,000 would be taxable in the financial year 2023-24 (assessment year 2024-25).
Gift received only on the occasion of the marriage of the recipient is not charged to tax. In all other occasions such as birthday, anniversary value of gift from a non relative in excess of Rs 50,000 for a year will be taxable under the head income from other sources.
Be careful as clubbing provision may be applicable to you
It’s not that you should only look at the tax provisions of section 56 to know whether its taxable in your hand or not. You should also look at other provisions of the income tax act, 1961 for a better tax planning.
As discussed above, gift to a relative is not taxable in the hands of recipient irrespective of the amount received. However, you have to remember the clubbing provisions of the income tax act, 1961.
For example, if you have gifted Rs 20,00,000 to your wife during the financial year 2023-24 (assessment year 2024-25), the same amount would not be taxable in the hands of your wife. However, if your wife creates a bank fixed deposit from the same gifted amount, then the interest amount earned from such deposits would be added to your income in the financial year in which its incurred.
For example, if Father-in-law or mother-in-law gifted property to daughter-in-law, then income from gifted property will get clubbed into the total income of father-in-law or mother-in-law as the case may be.
Also Read: Salary to Spouse can be clubbed in your hand for calculating tax liability
Summary of important provisions
| Nature | Taxable amount |
| Any sum of money received without consideration, the aggregate value of which exceeds Rs 50,000. | total aggregate value of such sum will be taxable in India |
| Immovable property gifted without consideration in which stamp duty value of property is greater than Rs 50,000. | Value of stamp duty will be taxable income |
| Immovable property gifted with inadequate consideration in which the difference between the consideration and stamp duty value exceeds Rs 50,000. | Stamp duty value minus consideration will be taxable |
| Specified property other than immovable property gifted without consideration of which aggregate fair market value is greater than Rs 50,000. | Fair market value of such property will be taxable |
| Specified property other than immovable property gifted with inadequate consideration in which difference between the consideration and aggregate fair market value exceeds Rs 50,000. | Fair market value minus consideration will be taxable |
Also Read: How dividend incomes are taxed in India
Frequently Asked Questions – FAQs
This year my friend has gifted a motor car to me as he moved to the USA. I came to know that the movable property acquired without consideration will be treated as a gift and will be charged to tax in my hand. Please let me know if I need to pay income tax on this gifted motor car.
Movable property transferred without consideration to any one being an individual or Hindu undivided family will be treated as a gift and income tax has to be charged on such gift items. However the definition of Movable property does not cover a Motor Car. As such if any one transferred a motor car without consideration then such item will not be treated as a gift. In your case you will not be liable to income tax.
My friend has transferred a rural agricultural land situated at my home village. The value of such land is Rs 1, 00,000. Will it be treated as a gift under the Income tax act, 1961?
According to the Income tax act, 1961, a rural agricultural land is not a capital asset and as such any transfer of such land will not be covered under the income tax act to treat it as a gift.
In your case, you will not be liable and the entire amount you received is tax free.
What are the assets covered under section 56 (2) to be treated as a gift if transferred to someone without consideration?
Following assets if transferred without consideration to an individual or Hindu Undivided Family will be treated as a gift under section 56 (2) of the income tax act;
- Any Cash or Cheque or Draft;
- land or building or both;
- Shares and Securities;
- Gold coins or jewelry;
- Archaeological collection;
- Drawings;
- Painting;
- Sculptures;
- Any work of Art
- Bullion
I have received a painting of Rs 30, 000, shares of a listed company valued Rs 20, 000 and ornaments of Rs 15, 000. None of the individual items are more than Rs 50, 000 during the financial year. Will I be charged to tax under the Income tax act for these gift items?
Income tax will be charged if you as an individual or Hindu undivided family receives gifts during the financial year in aggregate exceeding Rs 50, 000.
In your case the total gift received is Rs 65, 000 as such the entire amount will be treated as a gift during the financial year.
As you have not mentioned from whom you have received these gifts we are assuming that you have not received these gifts from your relative. If such gifts are received from your relative then the entire amount will be exempted.
I heard, if I receive a gift from my relative then nothing will be taxable even though the gift items are in excess of Rs 50, 000. Can you please let me know how the term relative is defined under the Income tax act for the purpose of gift?
According to section 56 (2) of the Income tax act,1961, any gift received from your relative will not be charged income tax.
For the above purpose relative means-
- Spouse of individual
- Brother or sister of the individual
- Brother or Sister of the spouse of the individual
- Brother or Sister of either of the parents of the individual
- Any lineal ascendant or descendant of the individual
- Any lineal ascendant or descendant of the spouse of the individual
- Spouse of the person referred in point number 2 to 6 above
