Taxation of Gifts

TAXATION OF GIFTS

GIFT

'Gift' is a transfer of a particular movable/immovable property from one person to another without consideration/adequate consideration.

TAXABILITY

Where an individual or an HUF receives an amount exceeding Rs.50,000/-, without consideration, from any person/s (after 01.10.2009), the whole of such amount shall be taxable in the hands of receiver/donee.

Where an individual or an HUF receives any immovable property, the stamp duty value (SDV) of which exceeds Rs.50,000/-, without consideration, from any person/s (after 01.10.2009), the SDV of such property shall be taxable in the hands of such individual/HUF.

Where an individual or an HUF receives any property* without consideration (other than immovable property), the fair market value (FMV) of which exceeds Rs.50,000/-, the whole of such FMV shall be taxable in the hands of such individual/HUF.

Where an individual or an HUF receives any property from any person/s, for a consideration which is less than the FMV by an amount exceeding Rs.50,000/-, the following amount shall be taxable in the hands of the receiver:

Amount Taxable = FMV - Consideration paid by the receiver of property.

*Property includes:

i) immovable property (land, building or both);

ii) shares and securities (including debentures and bonds);

iii) jewellery;

iv) archaeological collections;

v) drawings;

vi) paintings;

vii) sculptures;

viii) any work of art; or

viii) bullion.

EXEMPTIONS

NOTHING SHALL BE TAXABLE if the money/property is received 

(i)  from any RELATIVE**; or

(ii) on the occasion of the marriage of the individual; or

(iii) under a will or by way of inheritance; or

(iv) in contemplation of death of the payer or donor; or

(v) from any local authority (say, a Gram Panchayat), as defined u/s 10(20); or

(vi) from any approved fund, foundation, university, educational institution, hospital, medical institution, trust,     or institution; or

(vii) from any trust or institution registered with the Income Tax Department (u/s 12AA).

IMP: Any amount of money or value of property received from above - mentioned persons is NOT TAXABLE.

** WHO IS A "RELATIVE"?

In case of Individuals

(i) spouse of the individual;

(ii) brother or sister of the individual;

(iii) brother or sister of the spouse of the individual;

(iv) brother or sister of either of the parents of the individual;

(v) any lineal ascendant or descendant of the individual; (father, mother, grandfather, grandmother, son,        grandson, daughter, granddaughter)

(vi) any lineal ascendant or descendant of the spouse of the individual;

(vii) spouse of the persons referred to above. 

In case of HUFs

(i) any member of the HUF (amended by Finance Act, 2012 retrospectively from 01.10.2009)

HOW TO/WHEN TO DOCUMENT GIFT TRANSACTIONS?

There is an indistinctness with respect to compliance of the gift deed at times, i.e., whether a gift deed is required to be made in every circumstance? However, the following general inference can be made in this regard.

Gift made by way of cash or cheque does not mandatorily require to be executed through a gift deed. Writing a plain typed note on a paper will generally suffice. It is not required to be stamped and registered. One may simply mention the names of persons (donor & donee) , their relation and that the gift is being given out of love and affection.

Gift made by way of movable property is required to be made in stamp paper and stamped by the notary or court, and registration of gift deed is not required in this case. For the purpose of making a gift of immovable property, the transfer must be effected by a registered instrument signed by or on behalf of the donor. Gift of immovable property which is not registered is not valid as per law and cannot pass any title to the receiver.

PS: While receiving/giving gifts, the provisions of "clubbing of income" should also be kept in mind.

 - CA ANKIT CHANDRAKAR