Taxability Of Gifts In India: When Does A Gift Become Taxable?

Understanding the nuances without the jargon

 

Being gifted makes one feel good. We might receive cash as gifts from our parents, jewelry as gifts from our grandmother, or a property as a gift from any relative. However, not all gifts turn out to be exempt from tax. The Income Tax Act lays down certain specifications for the taxability of a gift. If one is not careful in this respect, one can land up facing a tax notice one never expected

 

Many of our clients ask us at CA Dhiraj Ostwal and Associates regarding the taxability of gifts. Sometimes, we face the question as to whether all gifts are exempt from tax or whether all gifts beyond a certain value are taxable, etc. We attempt to answer these frequently asked questions through the following discussion.

 

The Law related to Taxability of Gifts

 

India witnessed the abolition of Gift Tax way back in 1998, when the Gift Tax Act, 1958, was repealed. A few provisions in the Income Tax Act, however, continue to cover certain gifts under the head "Income from Other Sources." Specifically, Section 56(2)(x) of the Income Tax Act, 1961, covers such gifts.

 

It is important to understand that any gift received from one's relative is totally exempt from tax, irrespective of its value. On the other hand, a gift from a non-relative becomes taxable if its value exceeds a specified level. In this context, it is important to understand who falls within the definition of "a relative."

 

Who falls within the definition of "a relative?"

 

The Income Tax Act defines the word "relative" and specifies that a person shall be deemed to be a relative of another person if he is the spouse, brother, sister, spouse of brother, and sister, brother, and sister of the parents, lineal ascendant and descendant, lineal ascendant and descendant of the spouse, and spouse of any of the aforementioned persons.

 

Thus it may be understood that a person's own immediate family members are considered to be his relatives for the purpose of this section, which also covers one's uncles, aunts, and their spouses. Interestingly enough, Income Tax Act, 2025 has clarified that maternal and paternal lineal ascendants shall also be covered by this provision. Thus, gifts from both the mother's and father's parents are considered to be of relative, and hence, exempt from tax. This is an important clarification as a dispute could arise regarding the applicability of the said provision to gifts from maternal grandparents for many years

 

A Hindu Undivided Family (HUF) would be considered to include all its members as relatives of each other. Thus, a gift to the HUF by any one of its members shall be totally exempt from tax, without any upper limit

 

It must be noted that one's cousins and nephews do not fall under the category of one's "relatives" for the purpose of this section. Any gift received by a person from his cousin, therefore, would be totally taxable if it exceeds Rs 50,000. Similarly, a gift of Rs 60,000 in a year given by one's nephew would also be totally taxable. This is a vital point as many taxpayers wrongly believe that all family members would be covered under this exemption.

 

Are wedding gifts tax-free?

 

Fortunately, any gift received by a bride or a groom on the occasion of their marriage is totally exempt from tax. It does not matter who gives the gift - a friend, a distant relative, a colleague, or even an acquaintance. It does not matter what the value of the gift is either. This is a special exception carved out for wedding gifts, which means that the income tax laws in India are actually pretty generous when it comes to wedding gifts.

 

However, this exemption is claimed only by the bride and the groom. Any gifts received by the parents or even by the siblings of the bride and the groom cannot claim this exemption. Neither can the gifts received on an engagement ceremony or on the wedding anniversary, claim this exemption.

 

The place where the wedding is held is totally irrelevant - a gift received by the bride or the groom on the occasion of the wedding, even if held abroad, would continue to remain tax-free. However, one must remember to keep appropriate documents on record, which can prove that the gift was actually received by the bride or the groom. This may be helpful in case the tax department raises questions thereabout.

 

Gifts of Property, etc.

 

A gift of immovable property, if received without consideration and if the stamp duty value of such property exceeds Rs 50,000, shall be taxed in the hands of the recipient at the rate of the stamp duty value.

 

In case any consideration is paid by the recipient, but the consideration is lesser than the stamp duty value, then the difference between the stamp duty value and the consideration shall be taxed if it exceeds the higher of Rs 50,000 or 10% of consideration.

 

With respect to movable property, the Income Tax Act has enumerated specific items like shares and securities, jewellery, archaeological collections, drawings, paintings and sculptures, bullion and virtual digital assets. A gift of any such property, which does not have consideration, and whose total value exceeds Rs 50,000 shall be taxed in the hands of the recipient.

 

It must be noted that not all movable property is considered to be a "specified movable property", and hence, a gift of even certain valuable movable property like a car, shall not be taxed under this section.

 

Other Important Points

 

While the gift itself might be exempt, it is important to note that the income generated by that gift might not necessarily be exempt. In case one gives money to one's spouse, the interest income thereon shall be clubbed with one's income, under Section 64 of the Income Tax Act. Similarly, if one gifts any property to one's minor child, then the income thereon would be clubbed with one's own income, subject to one small exception, as discussed in detail below.

 

A gift deed is not mandatory in case a cash gift is given by a relative, but it would be better to document the fact of the gift. It is especially important to save all documents and bills relating to the stamp duty and registration charges, in case the gift is in terms of a property. It is always better to make gifts through cheques or online payments, rather than in cash. In case an exempt gift is received, it is important to disclose that gift in the Income Tax Return, if the ITR form specifically asks for it. The Annual Information Statement of the taxpayer usually contains details of all large transactions, and hence, a mismatch there between could invite further queries from the Income Tax Department.

 

Final Thoughts

 

Whether a gift is taxable or not depends on who gifts it, how much it is, what type of property it is, and on what occasion it is being given. Gifts from relatives and those received on the occasion of one's marriage are totally exempt from tax. Gifts from non-relatives become taxable, if their value exceeds certain limits. Understanding these nuances is vital in order to avoid unwelcome tax surprises. If one is at all in doubt, it is always better to consult with a qualified Chartered Accountant