Gifting is an age-old tradition in India, deeply rooted in our cultural practices, often symbolizing love, respect, and goodwill. Especially between parents and children, gifts hold a special place, transcending mere monetary value.
Legally, as per the Transfer of Property Act of 1882, a gift is described as a voluntary transfer of ownership without any consideration from the giver. This means that if someone willingly gives away their property, be it cash or otherwise, without expecting anything in return, it’s considered an unconditional gift.
But while the act of gifting might come from the heart, it’s essential to understand its legal and financial implications. Section 56 of the Income Tax Act delves into the taxation nuances for gifts, especially those received without or with inadequate consideration.
Historical Context of Gift Tax:
The concept of taxing gifts in India has seen various changes over the decades. Initially, the Gift Tax Act was introduced in 1958. Under this act, gifts, both movable and immovable, were taxed if their value exceeded a certain limit. However, gifts from specific relatives, including parents and children, were exempted from this tax, recognizing the cultural and traditional importance of gifting within families in India.
In 1998, the Gift Tax Act was abolished, leading to a period where gifts were not taxed. This period saw a rise in the misuse of this provision, with many using it as a loophole to evade taxes by disguising income as gifts.
Recognizing the potential for misuse, the government reintroduced the taxation of gifts under the Income Tax Act in 2004. Under Section 56(2)(v) and later amendments, gifts received by any individual or Hindu Undivided Family (HUF) over ₹50,000 in a year would be taxed as income unless they were from a defined relative or received during specific occasions like marriage. For this purpose, the definition of “relatives” included parents and children, ensuring that genuine gifts within families remained untaxed.
Over the years, the rules have been refined to address various ambiguities and potential areas of misuse. For instance, the definition of gifts was expanded to include immovable property and certain movable properties received without or for inadequate consideration.
In the context of gifts from parents to children, the regulations have always been considerate of the familial bond and cultural practices. While the tax laws have evolved, the essence has remained – genuine gifts, especially within the immediate family, should not be burdened with tax implications.
Taxation of Gift from father to daughter (General Rules)
The following are the situations in which gifts are taxed: Gifts are taxed in the recipient’s hands under the heading “Income from Other Sources.”
1. Monetary gift from father to daughter: Any amount of money received without consideration by the daughter and the aggregate value of such money received throughout the year exceeds Rs 50,000 will be taxed in the daughter’s hands.
2. Gift from father to daughter in the Form of Immovable Property:
a) No Consideration: If the value of such property exceeds Rs 50,000, the father will be taxed. It will be taxed under the category of “Other Income.”
b) Inadequate Consideration: If the consideration is less than the stamp duty value of the property and the difference is greater than the higher of Rs 50,000 or 10% of the consideration, then the father will be taxed.
While the Income Tax Act lays down general rules for the taxation of gifts, specific exemptions apply, especially when it comes to gifts from a father to his daughter. Understanding these exemptions can help in effective tax planning and ensuring compliance.
- Gifts from Relatives:
- As per Section 56(2) of the Income Tax Act, gifts received from relatives are exempt from tax. The term “relatives” for this purpose includes parents, and thus, any gift from a father to his daughter would not attract any tax, irrespective of its value.
- Gifts on the Occasion of Marriage:
- One of the most significant exemptions is for gifts an individual receives on the occasion of their marriage. This means that if a father gifts any amount or property to his daughter on her wedding, it is entirely exempt from tax. This exemption is crucial as marriages in India often involve substantial gifts.
- Inherited Gifts:
- If a daughter inherits property or money from her father, either through a will or due to succession laws, such gifts are also exempt from tax. However, any income generated from the inherited property, like rent from an inherited house, would be taxable.
- Gifts in Kind:
- Gifts in kind, such as jewellery, shares, or bonds, when given by a father to his daughter, are exempt from tax at the time of gifting. However, any income or capital gain arising from these gifts in the future would be subject to tax.
It’s essential to note that while these exemptions provide relief from tax, it’s crucial to maintain proper documentation for all significant gifts. This helps establish the gift’s genuineness and can be beneficial during any tax assessments or inquiries.
Understanding the tax implications of gifts is one thing, but applying that knowledge practically can sometimes be challenging. Here are some examples to illustrate how to calculate the taxable value of gifts:
- Monetary Gift:
- Suppose a father gifts his daughter ₹80,000 in cash. As per the Income Tax Act, gifts up to ₹50,000 in a financial year are exempt from tax. So, only the amount exceeding ₹50,000, which is ₹30,000 in this case, would be added to the daughter’s income and taxed accordingly.
- Immovable Property without Consideration:
- If a father gifts his daughter a piece of land valued at ₹15 lakhs without taking any money in return, and the stamp duty value of the land is ₹18 lakhs, then the difference between the stamp duty value and the actual consideration (₹18 lakhs – ₹0) would be taxable in the hands of the daughter.
- Immovable Property with Inadequate Consideration:
- Suppose a father sells a house to his daughter for ₹25 lakhs, but its stamp duty value is ₹35 lakhs. Since the daughter received it for a value less than its stamp duty value, the difference (₹35 lakhs – ₹25 lakhs = ₹10 lakhs) would be added to her income and taxed.
- Shares as a Gift:
- If a father gifts his daughter shares worth ₹1.2 lakhs, the entire value of the shares would be exempt from tax as it’s a gift from a relative. However, capital gains tax would apply if she sells these shares in the future based on the father’s original acquisition cost and the holding period.
These examples aim to clarify how gifts’ taxable value is determined. It’s essential to consult with a tax expert or advisor for specific scenarios, especially when dealing with complex assets or large gift values.
Gift From Father to daughter under Income Tax Act,1961
Section 2(41) of the Income Tax Act, 1961, gives the following definition of the term “relative”: “Relative,” in relation to an individual, means the husband, wife, brother, sister, or any lineal ascendant or descendant of the individual.
Gifts from the father to daughter are tax-free, regardless of the amount. A parent would be considered a “relative,”; thus, a gift from a father to a daughter will not be taxed in his hands as income. Without having any financial consequences for the kids, parents are free to give their kids any amount of money from their taxable income. Parents and kids fall under the defined category of “relatives,” who are excluded from paying income tax under the Income Tax Act.
1) Husband/Wife, Son/Daughter (including stepchild and adopted child),
2) Father/Mother (including stepfather/mother),
3) Daughter-in-law/Son-in-law, Brother-in-law (and his wife),
4) Sister-in-law (and her husband) are tax-exempt.
It would be in the daughter’s interest to get written confirmation there was a transfer of gift from father to daughter. Later, if the income tax officer wants, he can ask you to prove the identity and capacity of the donor to make the gift to her. She will need to prove that it was a gift from father to daughter.
While tax implications are a significant concern when gifting, there are also legal aspects that one must be aware of, especially when a father gifts something to his daughter:
- Transfer of Ownership:
- When a father gifts an asset, be it immovable property or movable assets like jewellery or shares, the ownership is irrevocably transferred to the daughter. This means the father no longer has any legal rights over the gifted asset.
- Gift Deed:
- For immovable properties, it’s advisable to execute a gift deed. This legal document establishes the transfer of property from the father (donor) to the daughter (donee). It should be registered to make the gift valid, and stamp duty may be applicable based on state-specific laws.
- As per the Transfer of Property Act, 1882, a gift that is complete cannot be revoked by the donor unless there’s a specific provision in the gift deed allowing for such revocation under certain conditions.
- Clubbing of Income:
- In the case of gifts to a spouse or a minor child, the income generated from the gifted asset might be clubbed with the income of the donor for taxation. However, this doesn’t apply to gifts from a father to an adult daughter.
- Maintenance Claims:
- If a father gifts a significant portion or all of his assets to his daughter, it might affect any maintenance claims that other dependents, like a spouse or other children, might have on him.
- Succession Laws:
- Gifting assets can have implications on succession laws. For instance, if a father gifts a significant portion of his assets to one child, it might affect the inheritance rights of other legal heirs.
- Liabilities Attached to the Gift:
- If the gifted asset has any liabilities attached, like a mortgage on a property, the daughter will inherit both the asset and its associated liabilities.
It’s essential to consult with a legal expert when considering significant gifts, mainly immovable property, to ensure that all legal aspects are addressed and the rights of all parties are protected.
Under Section 56, individuals are exempt from Income tax for gifts received on certain occasions, such as marriage. A gift from father to daughter for her marriage will be an exception. This is applicable only when the gift is in the name of the donee, who is either the bride or the groom; it would be taxable otherwise.
A gift deed is a legal document that is used when one person wishes to transfer money or property to another. A gift from father to daughter can be made during his lifetime. The gift can be property or anything else. For this purpose, since the immovable property is being transferred, he will have to execute a gift deed in your favour.
Essentials of a Gift from Father to Daughter
1) While drafting a deed of gift from father to daughter, the person must keep in mind that a gift is only considered valid if it is made voluntarily, without consideration.
2) There must be an offer by the donor, and the offer must be accepted by the donee. And the donee accepts the gift, according to Section 122 of the Transfer of Property Act, 1882.
3) The gift from father to daughter must be made willingly by the father, without any monetary transaction, and accepted by you. The deed must be signed by your father and witnessed by two witnesses.
Registration of Gift Deed
Section 17 of the Registration Act of 1908 lays down the documents that must be registered. As per Section 17(1)(a) of the Registration Act, a gift deed must be compulsorily registered, and charges have to be paid. Each state government determines a different value for stamp paper. A deed drafted for a gift from father to daughter must be written on the stamp paper after paying the applicable charges, after which the gift deed should be registered at the registrar’s or sub-registrar’s office.
Advantages of a Gift Deed
1) It allows the donor to freely transfer ownership of the movable or immovable property to the donee. In the case of a gift from father to daughter, this can be easily executed.
2) It allows the property owner to donate the property to anybody and removes any future inheritance or succession problems. A gift deed, unlike a will, transfers property quickly and does not require a court appearance to be performed.
3) A movable or immovable property, or an existing transferable property, can be donated via a deed. Having a registered deed will assist you in preventing any further disputes.
4) For the most part, deed transfers are generally Income tax-free for both the sender and the donee. Since a gift from father to daughter is tax-free, deed transfers are simpler.
Contents of the Gift Deed
1) The place and date on which the deed is to be executed.
2) Relevant information on the gift deed regarding the donor and the donee, such as their names, address, relationships, date of birth, and signatures.
3) Provide complete information and details about the property for which you draft a gift deed.
4) Two witnesses to bear testimony of the deed and their respective signatures
5) Print the details on the stamp paper with applicable value depending upon each state
7) Getting the deed registered at the respective registrar or sub-registrar’s office.
Frequently Asked Questions related to gifts from father to daughter
Q1: Is there a limit to the amount a father can gift his daughter without attracting tax?
Answer: No, there is no monetary limit when a father gifts his daughter, as gifts from specified relatives, including parents, are exempt from tax, irrespective of the amount.
Q2: Do I need to document or report a gift received from my father? Answer: While gifts from a father to his daughter are exempt from tax, it’s advisable to have a gift deed or documentation, especially for significant amounts or immovable property, to establish the genuineness of the gift if ever questioned.
Q3: Are gifts received at my wedding from my father taxable? Answer: No, gifts received on the occasion of marriage are exempt from tax. This includes gifts from your father and other individuals as well.
Q4: If my father gifts me shares or bonds, will the dividends or interest be taxable?
Answer: Yes, while the gift of shares or bonds is exempt from tax, any income generated from them, like dividends from shares or interest from bonds, will be taxable in the hands of the recipient.
Q5: Can my father gift me property without any registration or stamp duty?
Answer: While the gift itself might be tax-free, the transfer of immovable property usually requires registration. Stamp duty may also be applicable based on state-specific laws. It’s essential to consult local regulations or a legal expert.
Q6: If I sell a property gifted by my father, how is the capital gains tax calculated?
Answer: To calculate capital gains, the acquisition cost would be the cost at which your father acquired the property. The holding period will also include the time your father held the property before gifting it to you.
The income tax levied on a gift from father to daughter is an important concept to be understood. The transfer of property by way of gift is a common process; however, it is important for the owner to comprehend the complexities of the property transfer and to follow the enabling terms relating to the legal system.
The deed can be drafted and executed properly with the help of legal professionals and proper online legal advice. With the right guidance and assistance from legal experts, this process is simplified.