- In India, people love gifting various kinds of gifts to family, friends, and relatives to show their love and gratitude. It is an expression of joy and happiness that portrays humbleness.
- They are taxable income according to the Income Tax Act. Income tax on the gift received from parents is not charged.
- Before 2004, income tax was not introduced for gifting. It was after this year that some alterations were made in the gifting and taxation aspect.
Gifting and Taxation
- Any gift that is cash, property, valuables, or possessions given from one person to another that exceeds Rs 50,000 is counted under the head “income from other sources” and taxed accordingly.
- However, it does not apply to gifts received from relatives. Friends are not in this category, so the gifts received from them that are more than Rs 50, 000 will be taxed as per The Income Tax Act. Income tax on gifts received from parents is not taxable as per the law.
- There are no restrictions on the amount gifted, which is not taxable, but in the case of people other than family or relatives, it is charged for tax if the sum exceeds the prescribed limit.
- Therefore, income tax on gifts received from parents is not taxable under the law.
- But the money or gift received without consideration from any individual to another person of HUF is taxable if the prescribed amount exceeds Rs 50,000.
- Suppose an individual receives Rs 40,000 from a friend on their anniversary. This is not charged in tax as this doesn’t exceed the aggregate limit.
- The individual who received Rs 58,000 on their anniversary from a friend is taxable as income. Here the amount exceeded Rs 50,000 and will be chargeable for taxation.
Income tax on gifts received from parents is not applicable as per the law.
Gifts received from Parents and Relatives.
Income tax on the gift received from parents is not charged as per the law. The money or gifts are exempt in this case only and not for other individuals.
Where it is exempt
- Income tax on the gift received from parents or relatives is exempt if it is given during a marriage ceremony or occasion. They can also transfer through a gift deed.
- Money or assets received from a will or any inherited aspect is free from income tax and is not charged, just like in the case of income tax on gifts received from parents.
- At the same as, income tax on the gift received from parents are exempt from any charges, and money accepted during the contemplation of death or Karta of the HUF is not chargeable to tax.
- The money accepted from a local institution, authority, hospital, fund, foundation, or charity is exempt from income tax.
- If it is given from any amalgamating company, that is an Indian Company.
- If the gift was received during the partial partition or total partition of any HUF and joint family, similar to the income tax on the gift received from parents is exempt.
- The gifts and amounts received by the parents of the bride and groom are not free from tax. Only the couple can enjoy certain benefits because it’s their marriage ceremony. The income tax on the gift received from parents is not charged.
Certain gifts of movable or immovable property are also received through a deed of gift which will also be taxed if it exceeds RS 50,000.
Income tax on gifts received from parents who reside abroad or a child who stays outside India is also not charged to tax. However, if any relative sends it from abroad, it is chargeable as per the Income Tax Act.
There are gifts that are taxable when received from relatives and friends :
- Money: money can be transferred via any method, such as cash, cheque, or an electronic transfer. This is not charged when income tax on the gift received from parents is applied, but other than this case others are charged if the aggregate exceeds Rs 50,000 in a financial year. This will be counted in the whole amount and not just what they received after 50,000.
- Any immovable property: Any individual can gift their land, property, or asset to their loved ones or someone they are affectionate for. This is often with no consideration or some adequate consideration or mutual consent with transferring the ownership rights.
There is a need to take online legal advice when making a deed of gift and transferring ownership rights. The income tax on gifts received from parents via gift deed is also free of any charges and can be used as they wish after it has been successfully registered and transferred in their name. However, it must be done voluntarily and not by force to make it legally valid.
- Movable properties: Income tax on the gift received from parents is exempt for any movable property also. However, it is not the same for relatives and friends; they gift or receive and are taxed accordingly if the whole amount exceeds the Rs 50,000 mark. Gold, shares, bonds, and funds could be given to the person and will be taxed under the head ” income from other sources”.
The need for sufficient documentation is prudent to prove which gift is received under which circumstances for income tax on gifts received from parents to make it a lawful transfer or gifting. The person can seek online legal advice before gifting to understand what law is applied in what situations.