REPORTING BOTH TAX EXEMPT AND TAXABLE GIFTS

A gift primarily is an item presented to someone without the anticipation of receiving anything in return; it is a gesture of generosity and goodwill. Gifts can take various forms: they may be tangible objects, such as those given on birthdays or other significant events, or they may refer to qualities, such as an inherent talent or ability. The act of giving gifts is often associated with celebrating special occasions, including birthdays, weddings, and anniversaries, serving as a means to honor and commemorate these milestones. But, in “Income Tax” parlance the definition is slightly different and wider

Definition of a Gift As Per the Income Tax Act

Under the Income Tax Act, a gift includes:

• Monetary Gifts: Cash, cheque, draft, or bank transfer.
• Movable Property: Shares, bonds, jewelry, sculptures, paintings, etc., especially if received below market value
• Immovable Property: Buildings, land, etc., received below stamp duty value

According to the Income-tax Act, a "gift" can be money or property—whether movable or immovable—that an individual receives from another person or organization without making a payment. In legal terms, the provider of the gift is called the donor, and the recipient is known as the donee.

Gifts are sometimes used in tax planning or tax evasion. While tax planning within the bounds of the law is allowed, tax evasion is illegal and can result in penalties.

FURTHERMORE:

Tax on Gifts in India

Gift tax is no longer separately imposed in India since the repeal of the Gift Tax Act, 1958. However, the Income Tax Act covers taxation on gifts. Here’s what you need to know.

Tax Exemptions

Gift Value: Gifts up to Rs. 50,000 per year are tax-exempt. Gifts exceeding this amount are fully taxable. For example, if you receive Rs. 75,000 from a friend, the entire amount is taxable as "Income from Other Sources.".

Property Received Below Market Value: If you acquire property for less than its stamp duty value, the difference is subject to taxation. For example, if you obtain a flat valued at Rs. 50 lakhs for Rs. 30 lakhs, Rs. 20 lakhs difference is taxable.

Gifts from Relatives: Gifts from specified relatives (spouse, parents, siblings, etc.) are exempt, regardless of the amount. However, income generated from such gifts might still be taxable under clubbing provisions.

Marriage: Gifts given in contemplation of marriage are exempt.

Inheritance and Death: Gifts received under a will, inheritance, or in contemplation of the donor’s death are exempt.

Local Authority: Gifts from a local authority as defined under section 10(20) are exempt.

Educational and Medical Institutions: Gifts from funds, foundations, or institutions under section 10(23C) are exempt.

Registered Trusts: Gifts from trusts or institutions registered under section 12AA are exempt.

How to Declare Tax on Gifts in India

Under the existing Income Tax rules, gift taxation is a direct tax that the recipient is responsible for declaring and paying. To assess the tax liability, the recipient must report the gift's value on their Income Tax Return (ITR) under the "Income from Other Sources" section. The value of the gift is added to the recipient's total income for the financial year, and the gift tax is computed according to the relevant income tax slab rate.

Tax on Gifts from Friends

Both monetary and non-monetary gifts received from friends are subject to tax, as friends are not classified as 'relatives' for tax purposes. However, if the total value of gifts received throughout the year is less than Rs. 50,000, no tax is due.

Tax on Gifts from Relatives

Gifts received from certain relatives are exempt from tax, regardless of their value or amount. According to the Income Tax Department, 'relatives' for this exemption include:

• The individual's spouse.
• The individual’s siblings and their spouses.
• The spouse’s siblings.
• The individual’s parents or their siblings.
• Any direct ascendant or descendants of the individual.
• Any direct ascendant or descendants of the spouse or their spouse.
• Any member of a Hindu Undivided Family (HUF).

Where to report:

Exempt Income (EI) schedule of IT return.

More than 50,000; report total gift value Under "Income from other sources".

The entire gift value is taxable if the total value is more than 50,000.

Tax on Gifts Received at Marriage

Gifts received on the occasion of marriage are not subject to tax. This exemption applies exclusively to gifts received during marriage; gifts received on other occasions, such as anniversaries or birthdays, are subject to tax.

Where to report:

The 'Exempt Income' Section: In the ITR 2 form this is found under Schedule EI (Exempt Income).

Enter Details of the Gift: In the 'Other exempt income' field.

Specify the nature and amount of the gift received from relatives.

Tax on Gifts Received from Employer

Employer gifts are not taxable if the total value in a year is less than Rs. 5,000. If gift amount exceeds Rs. 5,000 then whole of the gift amount should be taxable.

Where to report:

More than 5,000; report as part of your salary income

The value exceeding 5,000 is taxable and added to salary income

Tax on Gifts Received by Grandchild or Minor:

There is no tax incidence in the hands of recipient, whether minor or an adult, if the gift is from a relative. Should the gift come from a non-relative and exceed ₹50,000 in value, it would be taxed under income from other sources.