This article is written by Aashish Ramchand, a Chartered Accountant by profession. Aashish is the co-founder of makemyreturns.com. He also has completed his CFA Level I (American) and is very passionate about writing articles on taxes and tax advisory. He can be reached at connect@makemyreturns.com
Generally, gifts are not regarded as Income chargeable to tax. However by virtue of Section 56(2) any sum of money exceeding Rs. 50000 received without consideration by an individual or an HUF from any person is chargeable to tax as income under other sources subject to exclusions as below:
- Receipts on occasion of marriage of the individual
- Receipts under a will or inheritance
- Receipts received from a relative.
Since 1/10/2009, Section 56(2) has been amended and the scope of gifts and will include even immovable properties or any other property besides sums of money under its ambit.
Gifts that are not taxable at all are those that are received from relatives. Relatives are defined by the following relationships of the individual:
- Parents
- Parents siblings and their spouse
- Siblings
- Spouse of siblings
- Daughter and son
- Spouse of daughter and son
- Spouse
- Spouse’s parents
- Spouse’s siblings and their respective spouse.
Even NRIs are covered as long as they fall in the category of relatives. Therefore an individual Indian resident can receive a tax free gift from an NRI as long as he/she is that individuals relative. Any amount can be received as a gift from a relative. Also the purpose for which the gift is received from a relative is inconsequential as it is completely tax free. Thus a gift received can be used for any purpose ranging from purchasing shares to buying property to even simply keeping it with the bank.
Note on gifting on immovable properties
There is a valuation aspect involved in gifting of immovable properties:-
- If the property is gifted without any consideration then if the stamp duty value exceeds Rs. 50000/-, stamp duty value will be taken
- If the property is gifted for a consideration, then the actual value of the property will be taken
In case of other properties:
- If gifted without consideration and fair market value exceeds 50000, then the fair market value will be taken as the final value
- If gifted for a consideration and the FMV less consideration is greater than 50000, then the FMV less consideration amount will be taken as the value of the gift.
As mentioned earlier NRIs can also give gifts to resident Indians. Therefore, It is important to understand the meaning of an NRI as per the IT act.
An individual will be treated as a non resident in India in any previous year if he fulfils any of the following two conditions:
- he/she is NOT in India in that year for period or periods amounting in all to 182 days or more, or
- Having within the four years preceding that year NOT been in India for a period or periods amounting in all to 365 days or more, and has NOT been in India for 60 days or more in that year.
If my daughter Rs.5 lacs in cash from relatives and friends on occations of her marriage. this amount is exempted or not from gift tax in her hand.
Gifts received at the time of marriage are totally exempted in the hands of receiver. You just have to have the details of the people who have gifted and what, if at all is required by income tax department.
My father sold his property (House), which in return he got capital gain money out of it. Can this money be gifted to his son or wife ? If ‘yes”, than at what period he can gift (Immediately or after 1 year……….)
Please suggest.
Prakash,
Since its capital gains he can gift the money only after paying capital gains tax. Once he has paid this tax he can gift the amount.
Many thanks for running this service. I have a question ! Though a reply posted on 29th may 2014 on this blog clarifies the ‘relatives’ from whom ‘gifts’ are not taxable – but is there any change after the ‘budget’ presented by Mr. Jaitley in July 2014. If my wife gifts me say 1 lac – will she or myself have to pay IT on the same. Thanking you sincerely in anticipation.
S.M.Vishwanath,
There is no change on Gift tax in Budget 2014. But when a gift is made then tax liability is on the donor i.e. person who is gifting money. So in your case tax liability on the amount she is gifting will be on her as it is her income.
Many thanks for your clear and concise reply !
My sincere thanks for all your contribution on this very useful website.
I think this information is incorrect.
Under the Liberalised Remittance Scheme (LRS) established by RBI, gifts from Indian Residents TO NRI close relatives are limited by a certain amount (whereas your article says that there is no limit on the amount of gifts)
http://www.rbi.org.in/scripts/BS_CircularIndexDisplay.aspx?Id=6712
Please correct me if I am wrong. As per my understanding, my Indian resident father can only gift me, NRI Son, the amount established in Liberalised Remittance Scheme (LRS) . This is currently set at USD 125,000 per year and changes frequently.
Anup,
Yes that’s right. Indian Resident can transfer gift in cash to NRI relatives upto the specified limit set by RBI in one financial year. This in my view means resident can gift more cash money to NRIs close relatives but will have to do it in the next financial year.
i am 50 years and want to gift my son (20 years and a student with annual income of Rs 2 lacs) a sum of rs. 10 lacs. what about tax implications?
Satpal,
Your son will not have any tax implication on the gifted amount.
Thanx Mr. Solanki. But what about any tax etc. at my end? Also shall my son have to pay any tax if he invests this amount in a debt fund?
Satpal,
If this is your income then you are the tax payer and so the tax liability is on you. So you will be gifting this money after paying the required tax. Once the money is gifted to your son then any income earned on it will be treated as his income and he will be liable to pay income tax.
Ihave some more than year old bonus shares,which
iwant to gift to my wife.For selling for i tax purpose what will be her date and price of purchase. Thanks K D Shah
KD shah,
In my view, in the case of gifted property, the cost of acquisition is the cost to the original holder i.e. you (or FMV as on 1.4.81 if the date of purchase is earlier). However for calculating indexation benefit the date of the gift should be taken as date of acquisition.
You can get it clarified from a tax expert.
Hi, I have gifted a house to my sister and got the dift deed registered. After 3 weeks of this gift deed is executed, my sister gave me Rs 31 lakhs as a gift. Will it lead to any tax complications or will it be considered as ‘avoiding the registration duty’, followed by ‘capital Gain Tax”?
Please help
Ramesh,
If proper tax provisions are followed then there should not be any issue. However the onus lies on you to prove it to the taxman that the transaction is not done to avoid any taxation. Registration of gift deed in movable properties is not mandatory but capital gains tax has to be paid by the assesse as per the income tax provisions, if it arises.
A gift of Rs. 3 lacs in cash was given by husband to his spouse in F.Y.2013-14 but gift deed for the same was not executed at that time. whether he can execute the deed for the same in F.Y. 2014-15?
what are the validity of such deed?
Hello Aashish, my question is regarding mode of transferring money as a gift. I want to transfer a few lakh rupees to my father’s account. If I use net banking (which is simpler than transfer by cheque), will I need to prepare a gift deed, etc. as proof of the gift? I am looking for a simple way to transfer the funds quickly and safely such that it can easily be shown to be a gift. Thanks.
Sharan,
For movable properties like jewellery or cash registration of gift deed is not mandatory. However apart from the transfer a gift deed will do good ob backing the gifted asset.So prepare a gift deed along with transferring the money.
I Want to gift my minor daughter rs45000/yr and want to continue the same for next few yrs .Is that possible?If yes what’s the process of gifting?
Mihir,
In case of minor any income earned on the gifted amount is clubbed with income of the donor . So if you are going to invest it the income earned will not be treated as your minor son income but of yours.
For better results register a gift deed even if it is not mandatory. You can mention how and what amount you will be gifting to your sons. But remember the clubbing rule in case of minors.
I am a senior citizen and have shares purchased about two decades back out of my tax paid income. out of the above, i want to gift some shares worth about rs. 30 -35 lakhs to my married daughter who has her own income and pays tax. please advise me as to:
(a ) whether she has to pay gift tax for this gift,
(b ) if yes, can the gift tax liabelity be obviated by making her my nominee in the demat account and transferring the shares to her through my will so that she will get the shares after my death.
patil n.b.
a) She will not be paying any tax as daughter is in the list of relatives for whom the gift tax is exempted.
b) In shares lying in Demat account the nominee is the demat account is the final heir. As per Supreme Court Ruling 2012 the companies act overrules the Will according to which the nominee in the demat account is the final legal heir of the shares. So the transfer of shares will not happen through a Will but as per nominations in demat account. You can choose this option if you want to bequeth shares after your death.
What If I want that my parent should pay the tax on whatever amount I gift to them instead of paying tax on my side, is it possible?
Arijit,
You can gift only after paying the required tax since the income is earned by you and so you are the tax payer. In hands of your parent it will be tax free.
My father in India has passed away and my mum wants to sell the family home and divide the money amongst her children.
I live overseas and am an OCI. Can I take the money out of India without paying tax in India?
If so, how do I go about proving this to the Indian tax department?
Thanks
Ajay,
Much depends on how the money is received. In current situation the selling of house will incur capital gains and so it will be liable to capital gains tax on the hands of the owner. Was there any Will of your father. If not then you are equal share holder in the property and so liable to pay income tax on your share. Else if the house was willed to your mother and then she is distributing then the the entire tax liability will rest on her.
gift from me to my nephew’s wife Rs. 500000=00 .
is it taxable in her account ?
Mr babulal,
the gifts given to following relations are tax free in their hands
1.Parents
2.Parents siblings and their spouse
3. Siblings
4. Spouse of siblings
5. Daughter and son
6. Spouse of daughter and son
7. Spouse
8. Spouse’s parents
9. Spouse’s siblings and their respective spouse.
your nephew’s wife doesn’t come under this list. So the amount that you want to gift her will be taxable in her hands.
Hi,
I have a query exactly related to this, suppose I want to gift some amount to my mother/father, lets say 1 lacs for easy calculation.
Ques 1:
Whether bother will be exempted from paying tax on that (if both lies in any tax slab ie 10/20/30 %), I think not but still want to confirm.
Ques 2:
Who will have to pay the tax then if Ques 1 is not applicable?
Whatever gift son gives to his parents are tax free in the hands of parents which ever income tax slab rate they fall in.
Arijit, you are gifting this amount from your income on which you are already paying taxes. so the gift is out of tax paid or payable income of you
What If I want that my parent should pay the tax on whatever amount I gift to them instead of paying tax on my side, is it possible?
Dear all,
what is gift tax rate in India
From Ajay
There no specific tax rates on gifts. Its just that if the gift comes under taxable category then whatever you have gifted will be added in reciever total income and will be taxed as per the income tax slabs he falls in.
sir,
i have learnt that i can gift an amount to my very senior citizen dad for opening FD in his nameand avoid clubbing of income from the interest generated on from that FD .
kindly tell me the procedure to do that to satisfy the IT authorities.
–sanjay
Sanjay, you are right. You can gift any amount to your dad and the interest generated out of that amount will not be added back in your Income.
You just have to write on a plain paper that you are gifting this amount to your dad out of natural love and affection by quoting his and yours Pan number. Sign it and also get it signed as acceptence of amount from your dad. This letter is sufficient to satisfy IT authorities.
Also do remember to pay this amount by cheque.
I gifted money to my dad via Third party transfer, and not via cheque.
Is it still ok to have the acceptance of amount from my dad in a plain paper to satisfy IT authorities ?
Hi,
I got rs 10 lack from my father in my bank account. Is this my income? We have to make any paper for this ammount.
Pls reply
Thnx
Naveen
This reciept has to have some reason to it. Is it a gift or a loan? If it is a gift you have to prepare a gift deed which can be on plain paper and if this is a loan, then also its better to get one agreement signed between both of you. Consult your tax consultant for these documents.
Hi,
I am working in Netherlands, and I am employed here for past 2 years.
And I am keep transferring my money to my Indian bank account.
Could you tell me, what is the maximum amount I can transfer as tax free per year?
Do I need to file tax return in India every year?
Regards,
Jeeva
Hello Sir
I learnt that the amount of money that I gift to my parents is exempted from income tax on my side i.e I can claim tax return on the same amount.
If this is applicable, I would like to know the procedure of such gifting and what proof I need to provide to Tax authorities to claim tax benefit.
Thanks
Nirmalya
Hi,
If you get the answer then please let me know as well.
Thanks,
Nirmalya, what you gift to your parents is out of your tax paid income i.e you have already paid or will pay tax on that. There’s no deduction as such available on that gift.
This is just that the amount that you gift to your parents is non taxable in their hands. also the interest they earn by investing that amount will not be clubbed in your income which otherwise would have if the gift was made to minor child or your spouse.
Hi,
What If I want that my parent should pay the tax on the gift that I give them is it possible?