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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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Comments

  1. Anil Kumar says:

    Hello,

    I submitted a request on June 2, 2009 (before 12pm) for purchase of units in Franklin Templeton-Money Market Account-Regular Bonus.

    1. The units were allotted on June 3, 2009 and a bonus was declared for June 4. However, My account was not credited with bonus units. Despite mulitiple reminders over a period of more than 7 weeks, the AMC is neither resolving the problem nor responding appropriately.

    2. As per offer document, the units should have been issued for NAV date of June 2. However, the transaction was processed for NAV date of June 3. The AMC delayed banking the cheque, for which they have forced me to suffer a loss.

    I have written to SEBI (investorcomplaints@sebi.gov.in), but not heard back so far. Can you please tell me how the fund can be forced to correct its mistakes?

    Regards,
    Anil Kumar

  2. Dear Sir,
    IF my fathers friend wants to gift my elder sister and my mother sum of 75000 which he is having idle, what is your suggestion..

    b/Rgds,
    Amul

  3. Anonymous says:

    Hi Amul,

    A gift received from a friends (or a relative’s friend) would be fully taxable.

  4. my father wants to transfer a property owned by him to me, is that taxable on me?

  5. Hi Anil,

    From the facts you have provided, it appears that you have been wrongly credited units on 3rd, when you should have been allotted the units on the 2nd.

    I think you are doing the right thing by approaching SEBI. Please wait and see what they recommend.

    Meanwhile, I am also submitting your case in the “Grievances” forum.

  6. Hi Sen K,

    No.

  7. vivek kedia says:

    what does the new tax code specify for gift tax

  8. Hi Raag
    My sister and mother have no income. So can I save tax by gifting money to them?
    Regards,
    Manish

  9. Hi Vivek,

    The code is expected to undergo radical changes, as this is only the first draft. I would write detailed articles as and when details are finalized.

  10. Anonymous says:

    Hi Manish,

    Yes, your mother or sister would not have to pay any gift tax on a gift received from you.

    Also, clubbing provisions would not apply – that is, the income they generate from such a gift from you would not be added to your income.

    So yes, as a family, you can save tax in this way.

  11. Hi Dhaval,

    In this case, it would be his income, taxable in his hands.

  12. Hi Dhaval,

    Technically, in the situation that you described, it would be her income and no clubbing provision would apply.

    But the gifts would need to be well documented as such. Also, if the assessing officer (AO) thinks that this has been done to circumvent clubbing provisions (which is a true in this situation), he would disallow this, and would club the income with yours anyway.

    I’m sorry, but I would not be able to guide you about how to avoid clubbing provisions. I would recommend not looking for loopholes!

    Of course, you can take advise of a practicing chartered accountant (CA) who should be able to advise you more on this.

  13. Sir, I am a nri.My wife is non nri & she has no income generated in india. I know that if i give gift directly to her than income generted from that gift will be clubbed to my income. can it be possible that first i give gift to her brother/sister 7 then in turn they give same amount of gift to my wife. Then income generated from that gift will be her income or her brother/sister or still my income. Please guide me. If still this is not her income than what are other sources of generation of income for her from my source of income.

  14. Sir,
    If i give my nri income to my father as a gift & he invests this money in small savings like MIS/NSC/KVP ,than interest from this income will be taxable to my father or to me.

  15. Sir,
    I am a NRI.If i give my NRI income as a gift to wife & then income generated from that gift will be her or only to me.
    Or any other way that from my NRI income to be converted separate wealth of my wife & she will enjoy separate income tax slab from that money. I do not want clubbing.

  16. Hi Dhaval,

    Income from such a gift would be clubbed.

    I suggest you consult a practicing CA for more information on how clubbing can be avoided.

    You have asked a lot of questions regarding this – But I do not encourage circumventing the law, and would not be able to help you.

    Sorry!

  17. Anonymous says:

    Hi Aashish,

    Thanks a lot…

    This would attract the income clubbing provisions, which means that you would have to pay income tax on any income from such a gifted amount.

  18. Sir, Thanks for providing valuable information on every aspect of financial matter.I want to ask that I have sold a house inherrited from my father.I have long term capital gain.After paying tax @20% on it, if I gift some of the money left after paying tax to my wife(house wife) and my two daughters(unmarried) ,whether they have to pay tax on the income generated from that money say interest on FD or I have to pay tax on it.

    ashish

  19. Hi Raagvamd,

    In case of gift to unmarried but major daughter, how would the clubbing provision applicable.
    I have (an NRI) gifted some shares and money (by rmt from abroad and tfr from my NRE A/c) to my daughter, a student at present but a major (above 18 yrs). She has invested part of money in shares/ MFs/ FDs. Will the income from the shares and money be clubbed with my income ?

    Rgds
    R N Sahu

  20. Hi Raagvamd,

    I am an NRI. My wife (housewife without any income of her own) lives with me. I give her a allowance for maintenance of house & her personal expenses; the money paid is slihtly on high side though not unreasonable.
    Out of the allowance, she remits part of money to her a/c in India (resident A/c).
    What are your views/ opinion on the clubbing of the income from the above money sent to her a/c in India with my income ?

    Rgds
    R N SAhu

  21. Rupesh Pagariya says:

    Hi sir,

    First of all thanks for your valuable information on most of my queries like PF, PPF, VPF. I have some query on gift as follow.

    My father is retired and my mother is house wife.
    Every month i transferred some money to them for their needs.
    Can i claim tax benefit on that amount and if yes how?

    -Rupesh

  22. Hi,

    My elder brother who is a US citizen wants to give a gift to me in the form of US dollars(Foreign currency) during his visit to our place in India.

    What is the maximum limit of gift in foreign currency that he can give ?
    Once I receive the gift, do I need to pay any gift tax ?
    How do I maintain the proof of gift tax ?

    Thanks in advance,
    Sandeep

  23. Sir,
    Thank you for posting valuable information and answering questions. I am a US citizen want to transfer about $2,500 USD (RS 115,062) to aunt to help her to buy a property for herself. I want to give her as a gift. Does she have to pay tax on this. She is my father’s sister.

  24. Hey,

    My Uncle living in the US left me some money, which i came to know after his death. When it gets transfered to my account, do i need to pay tax on it.

  25. Anonymous says:

    Hi Kalu,

    No, the daughter-in-law would not have to show it as her income as long as the father-in-law shows it as his income – even if he is not liable to any income tax on it.

  26. Anonymous says:

    Very senior citizen Father-in-law gifts a certain amount to his daughter-in-law by cheque.Same is invested by her in bank FD & which earns interest. As per IT laws, this interest income will be clubbed in father-in-law annual income. Due to very senior citizen tax exempt slab(no tax upto Rs 500,000), he remains unaffected & is still below taxable limit. Question is Will daughter-in-law have to also show this interest income as her income as well ? Physically the interest income is accrued to lady,not fatherin-law.

  27. Satyabrata Kabi says:

    Cash received for Rs.2 lac on the occasions of son’s marriage.is it taxable on the hands of assesee.
    Kindly reply me in this mail id.
    satyabcom2009@gmail.com

  28. dear sir,
    my mother’s brother is unmarried. he wants to give a gift land plot appx. value rs. 8 lacs. my question is in this case if we get the gift , i am liable to pay income tax.
    and how we transfer the property to my name, may we pay transfer stamp duty or not.
    kindly suggest me which way we receive the property to enable us to save stamp duty tax, income tax, legal title.
    ketan

  29. I would like to know if my brother(who is an NRI) gifts me money from his NRE account, is it taxable in my hands?

    What is the upper limit for such gifts?

  30. I am an NRI for last 3 yrs, my wife stays with me, my daughter doing her studies in india. I want to give some amount as monthly allowance for my daughter thru my NRE a/c to my mother-in-law. will it be taxable as my income in india under the new provision of income tax for NRI’s from the FY 12-13 onwards & have to pay tax on that ? pls advice.

  31. Hi,
    I received a gift from my father’s brother. Is it taxable?even if not, do i need to show it anywhere while filling my return? How does IT dept knows that i got it from my uncle?
    Thanks

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