How Are Gifts Taxed?

The next time you give or receive a gift, keep in mind that you may need to pay taxes. As per the Gift Tax Act, 1958, a gift tax will be imposed on gifts on certain gift items. So, if you are planning to gift anything of a significant amount, you should be aware of its tax implications.

Taxable Gifts

Gifts where taxes are levied on the recipient:

• Money: If you receive a gift that is higher than ₹50,000 in one financial year, it will be taxable under the ‘income from other sources’ head in your IT form. The tax will be imposed on the entire amount. The mode of transfer does not matter here because the tax will be imposed regardless of whether you receive the amount in cash or via online transfer or cheque. The tax rate applicable would be as per your income.

• Movable properties: Gifts such as gold, shares, and similar assets received without consideration and for inadequate consideration are taxable for the receiver. If the fair market value of these gifts exceeds ₹50,000, the tax will be imposed on the entire fair market value of the asset. If you have paid consideration against the gift that is lower than the fair market value, and the difference between the fair market value and the consideration is more than ₹50,000, a tax will be levied on the entire fair market value of the gift.

• Immovable properties: If immovable property, such as land, buildings, or factories, is transferred without consideration or with inadequate consideration, it will be treated as a gift. If the property is gifted without consideration and the value of stamp duty is more than ₹50,000, the receiver has to pay tax on the entire stamp duty of the property. The limit of ₹50,000 is for each property, not for the total properties received. If the receiver pays consideration that is less than the stamp duty of the property, and the difference is higher than ₹50,000 and 10% of the stamp duty, the difference will be taxed. Suppose you received land worth ₹10,00,000, and the amount you paid against it is ₹6,00,000. The difference is ₹4,00,000, which is higher than the stamp duty of ₹50,000 and over 10% of the consideration value for immovable properties (10% of ₹6,00,000 = ₹60,000). So, the tax imposed will be ₹4,00,000.

Gifts Where Taxes Are Levied On The Giver

There are certain gifts where the giver has to pay tax. For instance, if you rent out a property and gift the rent to your spouse, children, or parents, the amount of rent will be added to your ‘income from other sources’ and taxed as your income, not the recipients’ income. So, next time you gift anything or receive the same, it is good to consider the tax implications to avoid defaulting on your tax payments or even to save taxes.