According to the Income Tax Act, money or movable/immovable property that an individual receives from another individual/organization without making a payment is termed as “gift”.
Thus, from the taxation point of view, gifts can be classified as:
Gifts Exempted from Tax
1) Gifts or cash of up to Rs. 50,000 in a financial year are exempt from tax. However, if you receive gifts higher than this amount, the entire gift becomes taxable. For instance, if you receive Rs. 75,000 as a gift from your friend, the entire amount of Rs. 75,000 would be added to your income and taxed at your slab rate. It would be considered “Income from Other Sources”. Here, the total value of all gifts received is counted. In another instance, in case you receive Rs. 50,000 from one friend as a gift and Rs. 25,000 from another friend, the limit of Rs. 50,000 would be considered to be breached. The entire gift value (Rs. 75,000) would be taxable in your hands.
2) If you receive any property (movable or immovable) for inadequate consideration, the difference between the consideration and the stamp duty value would be considered a taxable gift. For example, if you are given a flat worth Rs. 50 Lakh (according to circle rates/ready reckoner rates for stamp duty) and you pay only Rs. 30 Lakh, then the excess Rs. 20 Lakh would be considered a taxable gift. Note that if the difference between the actual value and stamp duty value is less than Rs. 50,000, the transfer will not be considered a taxable gift.
3) Gifts from specified relatives are exempted, regardless of the amount received. These relatives are spouse, father, mother, brother and sister. They also include any lineal ascendant or descendant of the individual or his spouse as well as brother/sister of the spouse. However, note that even though the gift itself is exempt in the hands of the recipient, the income generated from the gift from relative may be taxable under the clubbing of income provisions of the Income Tax Act. For example, if Mr. A gifts Rs. 10 Lakh to his wife, the same would not be added to the income of his wife. However, if his wife creates an FD from the same and earns interest, the interest would be added to the income of the husband.
4) Gifts given in contemplation of marriage of the recipient.
5) Gifts given in contemplation of the death of the donor and gifts given under a will or inheritance.
6) Property received from a local authority as defined under section 10(20) of the Income-tax Act.
7) Property received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C).
8) Property received from a trust or institution registered under section 12AA.
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