Taxing Matters. Taxability of the gifts you receive

A gift is generally understood to mean an item given voluntarily to someone without any payment. There is no cost in the context of a gift, or is there?

Presently, there is no separate law governing taxability of gifts in India. Taxability of gifts needs to be considered based on the provisions in the Income Tax Act for taxation of money and/or property received for no consideration or inadequate consideration.

However, there are also certain exemptions from such taxation.

Taxable gifts

Any sum of money received without consideration exceeding ₹50,000 is subject to tax under the head ‘Income from Other Sources’.

Similarly, immovable property received without consideration is taxable if the stamp duty value of the property exceeds ₹50,000. Immovable property received for a consideration less than than stamp duty value is taxable where the stamp duty value exceeds the consideration by more than ₹50,000. For example, Mr A purchases land and building from Mr B for a consideration of ₹80 lakh.

The assessable value of the property for stamp duty is ₹1 crore.

The difference between the stamp duty value of the property and the consideration paid — ₹20 lakh — will be taxable in the hands of Mr A as Income from Other Sources.

With effect from April 1, 2019 (FY2018-19), in case of transfer of immovable property, where the difference between the stamp duty value and the consideration is not more than 5 per cent of the consideration paid, such difference will not be considered taxable.

In other words, taxability will not arise even if stamp duty value exceeds the consideration paid by more than ₹50,000 if such difference is not more than 5 per cent of consideration paid.

Suppose, Mr A purchases land and building from Mr B for a consideration of ₹98 lakh. The assessable value of the property for stamp duty is ₹1 crore.

In this case, while the difference between the stamp duty value and the consideration paid (₹2 lakh) is more than ₹50,000, such difference is less than 5 per cent of the consideration paid (5% of 98 lakh = ₹4.90 lakh). Therefore, there would not be any tax impact.

This amendment was introduced by the Finance Act, 2018.

Property other than immovable property received by a person without consideration, the aggregate Fair Market Value (FMV) of which exceeds ₹50,000, would be taxable in the hands of the recipient.

Property other than immovable property received by a person for a consideration less than FMV of the property would be taxable in the hands of the recipient if the FMV of such property is more than the consideration paid, by an amount exceeding ₹50,000.

Property for the purpose of taxation means immovable property being land or building or both, shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures, any work of art or bullion.

Exemptions

Gifts are not taxable if received from relatives or on the occasion of marriage of the individual or under a will/inheritance or under certain other circumstances as specified in the I-T Act.

In this context, it is important to understand who can be considered a ‘relative’ of an individual.

Relative for this purpose means: (i) spouse, (ii) brother or sister of the individual, (iii) brother or sister of the spouse, (iv) brother or sister of either of the parents of the individual, (v) any lineal ascendant or descendant of the individual, (vi) any lineal ascendant or descendant of the spouse of the individual and (vii) spouse of the persons referred to in (i) to (vi).

If the individual receives a gift exceeding ₹50,000 in value from a friend, employer or any person not covered by the definition of ‘relative’ on an occasion other than marriage, such gift would be fully taxable.

The writer is Tax Partner, People Advisory Services, EY India. Meena Narayanan, senior tax professional, EY, also contributed to the article.

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