When is money gifted not taxable? All your tax queries on gifts answered

Gifts up to Rs 50,000 in a year are exempt from tax in India. In addition, gifts from specific relatives like parents,  siblings, grandparents are also exempt from tax. Tax on gifts in India falls under the purview of the Income Tax Act .

Are gifts in cash and kind, both taxable?

Yes, all kinds of gifts including cash, gold, real estate, paintings or any other valuable item are taxable. However if the cash amount or value of the gift in kind is less than Rs 50,000 the same would not be taxable.

Illustration 1

During the financial year 2023-24, Raja received the following gifts from his friends:

 

 Rs 25,000 on 1-5-2023

Rs 18,000 on 20-12-2023

The aggregate amount of gift received by Raja during the year amounts to Rs 43,000 (Rs. 25,000 + Rs. 18,000) which is below Rs. 50,000, hence, no tax will be imposed. But if the amount of second gift is Rs 28,000 instead of Rs. 18,000, then the aggregate amount of gift will come to Rs. 53,000 (Rs. 25,000 + Rs. 28,000). In this case, entire amount of Rs 53,000 will be charged to tax in the hands of  Raja

Illustration 2

Mr. Kumar received following gifts during the financial year 2023-24:

Rs  1,84,000 from his friend residing in Canada.

Rs 25,200 from his elder brother residing in Delhi.

Rs 84,000 from his friend residing in Delhi (received on the occasion of birthday

of Mr. Kumar).

What will be the tax treatment of above items in the hands of Mr. Kumar?
 

"Sum of money received without consideration (i.e. gift) by an Individual or a HUF from any person other than relative  and

otherwise than on prescribed occasions (as discussed earlier) is charged to tax, if the aggregate amount of such gift received during the year exceeds Rs. 50,000," according to the Income Tax norms. 
 

Hence, for Mr Kumar  Rs. 1,84,000 received from his friend will be fully taxed because friend is not covered in the definition of ‘relative’.

 Rs. 25,200 received from elder brother will not be charged to tax because elder brother is covered in the definition of ‘relative’.
 

Birthday is not covered in the list of prescribed occasion on which gift is not charged to tax, hence Rs.84,000 received on the occasion of birthday will be fully taxed.

In India, if an individual receives a gift, whether it's cash, immovable property, or any other item of value exceeding Rs. 50,000 from a non-relative, it generally falls under taxable income.

However, there are exceptions. 

Ankit Jain, Partner, Ved Jain & Associates explains circumstances when gifts are exempt from tax

1. Relatives' Gifts: Gifts from relatives, as defined by the Income Tax Act, are not subject to tax, irrespective of the amount. For instance, if your sibling gifts you a piece of jewellery worth Rs. 3 lakh, it won't be taxed.

In another example by Paisabazaar, if Mr A gifts Rs 10 lakh to his wife, the same would not be added to the income of his wife. However if his wife creates an FD from the same and earns interest, the interest would be added to the income of the husband.  

To prove that the amount received is indeed a gift  from a relative and not taxable income, it is generally recommended to maintain documentation and records of the gift transactions, said  Pallav Pradyumn Narang, Partner, CNK.

This might include a written statement or letter from the relative stating their intention to gift the funds, as well as any evidence of the transfer or receipt of the funds. And where property is gifted by a relative, gift deed should be prepared and kept as an evidence for the transaction. There is no separate disclosure mandated in the return of incomes to be filed.

2. Marriage Gifts: Presents received on the occasion of one's marriage are tax-free, regardless of their monetary value. For example, if a friend gifts you a painting worth Rs 70,000 during your wedding, it won't be taxed.

3. Inheritance: Any assets or money received via a will or inheritance are exempted from tax. For instance, if you inherit a house from your parents worth Rs. 1 crore, this inheritance isn't subject to tax. 

The term "relatives" include your parents, siblings, spouse; and your spouse's parents, your spouse's siblings; and your lineal descendants (children, grandchildren) and ascendants (parents, grandparents), along with their spouses.

Point to note: Gifts received from non-relatives on the occasion of marriage are exempt from tax.

"Therefore, an individual can receive gifts of any monetary value from any person on the occasion of their marriage even if such person is not a relative as defined under the Income Tax Act and the individual shall gave no tax liability upon the same. Additionally, any gift given by someone at his / her death bed and in contemplation of death is exempted from tax in the hands of the receiver," said  Sandeep Bajaj, Managing Partner, PSL Advocates and Solicitors.

4. Gifts from local authorities: Another example of a tax-exempt gift is when you receive money or property from local authorities or any recognized religious or charitable organization.

 If you receive any property (movable or immovable) for inadequate consideration, the difference between the consideration and the stamp duty value value would considered as a taxable gift. For example, if you are given a flat worth Rs 50 lakh (according to circle rates/ready reckoner rates for stamp duty) and you pay only Rs 30 lakh, then the excess Rs 20 lakh would be considered a taxable gift. Note that if the difference between actual value and stamp duty value is less than 50,000, the transfer will not be considered a taxable gift.

Taxability under certain situations explained

1. Grandfather gifts Rs 200, 000 to his grand daughter:  Not taxable under this provision as gift is received from a relative.
 

2. Received property by Inheritance - Not taxable under this provision as property is received by inheritance. "Any property received as inheritance from a ‘Relative’ as defined under the Act is entirely exempted from gift tax, but the income derived from the ownership of such property or the amount received from the sale of such property is not exempted and is taxable under the category of capital gains," explained Bajaj. 

Inherited property provides income to the new owner, such as rent or interest, among others. The heir receives the income when he/she becomes the owner. As a result, the new owner must declare this income and pay taxes on it. The owner of an inherited property is taxed every year under the head, 'Income from house property’. Moreover, the income generated from the sale of inherited property is treated as Long Term Capital Gains thereby attracting a tax of 20 percent. Though one can claim tax exemption on the capital Gains.
 

3. Gifting money to buy jewellery by a relative - Not taxable under this provision as gift is received from a relative.
 

4. Property / shares received as a gift – If the said property is received from a relative or under will or inheritance, there is no taxation in the case while if these are received from a non relative, excess of fair market balue over the consideration shall be taxable under this provision (though exempt upto Rs 50000), explains Pallav  Pradyumn Narang, Partner, CNK.
 

5. Gift received from fiance – Taxable under the provision as fiance is a non relative.
 

6. Alimony received - Not taxable under this provision as gift is received from a relative.
 

7. Gift received from a Non relative on marriage of Receiver - Not taxable under this provision as gift is received on account of marriage of receiver, even if the gift is provided by a non relative. Please note that in certain situations clubbing provisions may apply especially in the transactions where husband and wife are involved.

Classification of gifts

"The taxpayers should also keep in mind that gifts are classified as money, immovable property and movable property. All these classes have separate limits and are not cumulative. Illustration - If you receive gift of Rs 40,000 as money and gift of Rs 40,000 as property, there will be no tax liability. However, if you receive Rs 51,000 as money, the whole amount will be taxed as per the applicable slab rate," said Bajaj. 

Declare the value of the gift at the time of filing returns
To calculate the tax payable, the value of the gift has to be declared by the donee at the time of filing Income Tax Returns under the head “Income from Other Sources.” Thus, the taxable value of the gift becomes part of the income of the donee for the Financial Year. The gift tax liability is then calculated as per the income tax slab rate of the donee. So, potentially, individuals in the highest income tax bracket will have to pay 30% tax (plus applicable Health and Education Cess) on presents received during a financial year.


Capital Gains on Assets received/transferred as Gifts

In the hands of the person giving the gift

If a person gives gift to another, then such gift would not be regarded as transfer and therefore no capital gains would arise in the hands of the transferor i.e. the person who is giving the gift. And therefore, at the time of giving the gift, no tax would be required to be paid by the person giving the gift, said CA Karan Batra.

In the hands of the person receiving the gift

The Cost of acquisition in the hands of the person receiving the gift would be the same as the cost of acquisition in the hands of the person who gave the gift.
 

For the computation of period of holding, the period of holding in the hands of the person giving the gift would also be included.

Are Gifts Received by a Minor Taxable?

Gifts received by a minor will be taken into consideration and will be clubbed with income if both the parents are earning taxable income. It will be clubbed with the parent who is earning the highest income.

Are Gifts Received by a NRI Relative Taxable?

Gifts received by a NRI relative is exempted from gift tax.

What about the Income Earned from a Gift?

According to Income Tax rules, income earned from a gift will not be exempted from tax and will be treated as individual income and will attract tax.

What is considered a relative? 

Gifts from relatives are not taxable under the Income Tax Act. As per the Income Tax Act, the following list of persons is defined as a relative of an individual. 

Spouse of the 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 persons referred to in (2) to (6).

In case of HUF, gift received from any of the members of the HUF is exempt from Income Tax.

Money Received in Contemplation of Death

Similar to inheritance being not taxable, money received in contemplation of death of an individual or Karta or member of a Hindu undivided family is also exempt from Income Tax.