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Tax on gifts (Gift tax): When to pay, how much to pay and what is exempt

Gift tax is something that worries many of us. What is gift tax? When do we need to pay it? How much is the tax? Are any gifts exempt? Let’s find out.

What is gift tax?

When you receive a gift from someone else, it is clubbed with your income, and there is a tax on it. This is popularly known as gift tax.

The gift tax is levied on both cash gifts (that is, cash / cheques / drafts) and certain gifts in kind (like property, shares, jewellery, work of art, etc).

When do you need to pay gift tax?

When the gifts received in a year are more than Rs. 50,000 in value, you need to pay the gift tax.

(Certain gifts are not taxed – read on for more)

Rate of gift tax

So, what is the rate at which gift tax is charged?

Now this is interesting – read carefully. Technically, there is no “gift tax”. Gift tax is a popular name for the income tax on gifts received.

Thus, gifts received over Rs. 50,000 are treated as your income, are added to your income, and are taxed as per the income tax slabs applicable to you.

(Read “Income Tax (IT) Slabs / Brackets and rates” for the current income tax slabs)

When is gift tax not applicable?

There are certain gifts on which gift tax is not levied (that is, these gifts are not added to your income). Here is an explanation.

Gifts received from relatives

Any gift you receive from your relatives is not taxed – irrespective of its value.

Here, “relative” means:

  1. Your spouse
  2. Your brother or sister
  3. Brother or sister of your spouse
  4. Brother or sister of either of your parents
  5. Any of your lineal ascendants or descendants
  6. Any lineal ascendant or descendant of your spouse
  7. Spouse of the persons referred to in (2) to (6)

Example 1: If you receive a gift of Rs. 1 Lakh from your father’s brother (your uncle – point no. 4), it would not attract gift tax.

Example 2: If you receive a gift of Rs. 1 Lakh from your father’s brother’s wife (your aunt – point no. 4 + 7), it would not attract gift tax.

Example 3: If you receive a gift of Rs. 1 Lakh from your wife’s father (your father in law – point no. 6), it would not attract gift tax.

Example 4: If you receive a gift of Rs. 1 Lakh from your wife’s father’s brother (your wife’s uncle), it would attract a gift tax.

Gifts received at the time of marriage

All gifts received by you on the occasion of your marriage are tax free, irrespective of their amounts and irrespective of the person gifting them to you.

The gift doesn’t have to be given on the exact day of your marriage – it can even be a day before or after. There is no specific limit of time, but you should be able to establish that the gift was given for your marriage.

Gifts received through inheritance

Any gift received by you through inheritance (by way of a will or otherwise) does not attract gift tax irrespective of its value.

Other gifts that are exempt from gift tax

There are certain other gifts that are also exempt from income tax.

  • Gifts received from any local authority
  • Gifts received from any foundation / university / other educational institution / hospital
  • Gift received from any trust / institution (registered as a public charitable trust / institution under section 12AA)

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