- The total value of gifts received in a year is added to determine the income tax that will be levied on it. It does not depend on the individual gift or the basis of any particular occasional gifting. Indians love exchanging gifts ranging from diamonds, cash, gold, property, shares, or anything valuable that can be gifted.
- The gifts received by friends and families might not always be tax-free as there are several regulations imposed on gifting in India, where cash gifts from relatives are exempt from Income tax under certain conditions.
- If the value of the gift received exceeds Rs 50,000, then the breached amount of the gift is fully taxable under the Law. However, there are cash gifts from relatives exempt from Income tax on certain occasions such as marriage, inheritance, etc.
- For example: If an individual has received Rs 60,000 worth of gifts from friends and family in a particular financial year. The entire Rs 60,000 is taxed under the head “income from other sources.”
- The cash gift from a relative is exempt from income tax only if it is within Rs 50,000.
- Friends are not validated as relatives, and gifts received from them are not tax-free. As per the Income Tax Act, the following are considered relatives, such as a spouse, siblings, siblings of the spouse, parents of either, any lineal descendant or ascendant of either or the spouse, or the spouse of the persons related to the above-mentioned relatives.
- So the cash gifts from relatives are exempt from income tax if they do not exceed the Rs 50,000 mark.
Income tax on Gifts received
Income tax on gifts was not applied till the year 2003. Certain amendments were made in the Income Tax Act for gift taxation and its regulation.
As per the new Income Tax Act, any gift received by an individual or HUF is taxed if the value of the gift in the current financial year breaches the Rs 50,000 mark. Gifts that are received from relatives are not applicable for Income tax.
Below are some factors considered in Income tax calculation.
- Gifts are not taxed if it is received by an individual during their wedding. Cash gifts from relatives are exempt from Income tax if it is received during their marriage occasion.
- Money received by inheritance or through a will is also exempt from Income tax. Cash gifts from relatives are exempt from Income tax if it is stated in a will, which will be received by the individual in case of the death of the relative who made the Will.
- If the money is received in contemplation of the death of a person or HUF is not taxed. The cash gift from relatives is exempt from Income tax if received only in contemplation of death.
- Any fund or money received from foundations, university, institutes, or hospitals are exempt from tax and is not a liability.
Property transferred by Gifting
- In India, any movable or immovable property can be gifted by a person to family or friends to show love and affection. It is without compensation and is made legally valid through gift deed registration.
- Many transfers are made as cash gifts from relatives, are exempt from Income tax, and can be used to help someone or show gratitude.
- The donor clears stamp duty and deed registration charges so that the donee can enjoy the gifted property (movable or immovable) freely without any consideration.
- It is not mandatory to register a gift deed for cash gifts. The action is purely voluntary and can be processed thoroughly by taking legal consultation to avoid confusion and misuse in the future.
Gift Deed for cash
- A gift deed prepared for transferring money allows one individual to gift money to another individual with no consideration in exchange.
- The document drafted for transferring money is vital and legal proof of the transaction.
- It is by nature legally binding and can prove the actual transfer of money to avoid misunderstandings.
- It also acts as an advantage as cash gifts from relatives are exempt from Income tax to a certain limit.
Procedure to make a Gift Deed for cash
- The deed can be drafted with the help of legal consultation, as the professionals can guide or draw the deed themselves. The deed must positively mention that the cash gift is made without any undue influence or coercion.
- The lawyer will make sure that the legal formalities are taken care of so that no legal litigations can arise in the future. Here, cash gifts from relatives are exempt from income tax and can be used freely.
- The donee’s acceptance is also stated in the gift deed, which is to be signed by both parties to ensure mutual consent.
- A minor cannot draw a gift deed in India, but they can receive it. Their guardians can accept the transfer on the minor’s behalf. Cash gifts from relatives are exempt from income tax, and it might be a way to help someone or show gratitude.
- The registration is done with the sub-registrar, who will verify and scrutinize both parties before validating the gift deed for fund transfer.
The donor can Gift any movable or immovable property or possession as they wish. Income tax does not apply to gifts received from family members. Cash gifts from relatives are exempt from Income tax, but certain rules and regulations are in place to avoid the misuse of this particular exemption.
The income tax act states that cash gifts from relatives are exempt from Income tax only if the amount is within Rs 50,000. If it exceeds this value, the rule of exemption is not applicable. It is payable under the head “Income from other sources” and is counted for a financial year.