Taxability of Gift
Under the Income Tax Law, transfer of any property (movable or immovable) is subject to capital gain tax. However, if the transfer qualifies as a “Gift”, then the same shall not be considered as taxable transfer for the Tax purposes. There is no definition for ‘gift’ provided in the Tax Law. However, based on judicial precedents, the following criteria essential for a transaction to qualify as ‘Gift’:
- The transfer must be made voluntarily by the Donor / Transferor; and
- The Transfer must be made without consideration
Though the term ‘gift’ is commonly understood as between natural persons on account of natural love and affection, the Income Tax Act covers gift transactions even between any persons (including corporates).
Now, the question arise whether a gift is income in the hands of recipient. Gift, in the hands of Donee, ordinarily represents capital receipt and is not of income nature. However, there is an exception in the Indian tax law to consider certain gift transactions are considered as taxable income in the hands of Donee (the person who accepts the gift).
The Income Tax Act provides the following transaction value would be subject to tax in the hands of recipient (donee) as income from other sources if he received without consideration or for inadequate consideration:
|Subject Assets||Threshold Value (in INR)||Taxable Value|
|Any sum of money (Cash)|| 50,000||Whole sum of money|
|Any Immovable Property|| Without consideration|
Stamp Duty Value (‘SDV’) exceeds 50,000
|Any Immovable Property||For Inadequate consideration|
If consideration is less than SDV and the difference is more than aggregate of INR 50,000 and 5% of consideration
|Excess of SDV over consideration |
|Any Property (other than immovable Property)||Without consideration|
Fair Market Value (FMV) exceeds 50,000
|Any Property (other than immovable Property)||For Inadequate consideration|
If consideration is less than FMV and the difference is more than INR 50,000
| Excess of FMV over consideration |
Above taxation system shall not be applicable if the person (individual) receive such money or property in the following occasions / from person:
- From any relative.
- On the occasion of the marriage of the individual.
- Under a will or by way of inheritance.
- In contemplation of death of the payer or donor, as the case may be.