How Are Gifts Taxed? – Gift Tax Exemption Relatives List

Under the Income Tax Act, gifts are considered a part of income. If the value of the gift crosses a specified limit, it is taxable under the head “Income from Other Sources.” However, certain exemptions are available when gifts are received from specific individuals or on particular occasions. Gifts valued up to ₹50,000 are fully exempt from tax.

This article explains how gift taxation operates—covering which types of gifts are taxable, the applicable limits, and the exemptions allowed.

Gift Taxation in India

According to Section 56 of the Income Tax Act, 1961, gifts received by any individual are taxable in the hands of the recipient under the head ‘Income from Other Sources’ at normal tax rates. The following section explains the types of gifts covered under the Act and the extent to which they are taxable.

Threshold Limits for Exemption and Taxability of Gifts

The gift tax provisions are covered under Section 56(2)(vii) of the Income Tax Act, 1961. The table below summarizes the nature of gifts, their exemption limits, and the amount taxable when the limits are exceeded:

*Value adopted by the stamp duty authority for stamp duty purposes.

Example 1:
Stamp duty value = ₹2,00,000
Consideration paid = ₹75,000
Taxable amount = ₹1,25,000 (since the stamp duty value exceeds the consideration by more than ₹50,000).

Example 2:
Stamp duty value = ₹2,00,000
Consideration paid = ₹1,60,000
Taxable gift = Nil (as the difference between stamp duty value and consideration does not exceed ₹50,000).

Provisions Relating to Stamp Duty

The provisions for determining stamp duty value under gift tax are similar to those outlined in Section 50C of the Income Tax Act. The following points explain how stamp duty value is considered for gift taxation purposes:

• For calculating gift tax, the stamp duty value as of the date of the agreement determining the consideration is taken into account, provided the following conditions are met:
  
  1. The date of the agreement and the date of registration are different; and
  2. The consideration, in whole or in part, has been paid through an account payee cheque, bank draft, or electronic transfer on or before the date of the agreement.
• If the taxpayer disputes the stamp duty value, the Assessing Officer must refer the matter to a Valuation Officer (VO) as per Section 50C. The VO will issue a written order determining the property’s value.
• For gift tax purposes, the lower of the two values — either the stamp duty value or the value determined by the VO — should be considered.
• In the case of immovable property, if the stamp duty value exceeds the actual consideration received, a relaxation of up to 10% of such consideration is allowed. This difference will not be treated as income from other sources.

Tip: When the value of gifts crosses the exemption threshold or becomes taxable, it is advisable to prepare and preserve a gift deed. This document serves as valid proof of the source of the gift and can be helpful in responding to any tax authority queries.

Exemptions – Gift Taxation

While certain gifts received by an individual are subject to gift tax, there are specific exemptions available.

Gifts Exempt on Specified Occasions

The following gifts are exempt from tax, regardless of the donor:

• Gifts received on the marriage of the individual
  
• Gifts received under a will or by inheritance
  
• Gifts received in contemplation of the death of the donor
• Any distribution of capital assets on total or partial partition of a HUF (only HUF members are exempt in this case)

Gifts Exempt – Received from Specified Persons

Gifts received from the following persons are exempt from tax:

Relatives:

• Spouse
• Brother or sister of self or spouse
• Brother or sister of parents or parents-in-law
• Any lineal ascendant or descendant of self or spouse
• Spouse of any of the above relatives

Other Specified Donors:

• Local authorities such as Panchayat, Municipality, Municipal Committee, District Board, or Cantonment Board
• Funds, foundations, universities, educational institutions, hospitals, or medical institutions referred to under Section 10(23C)
  
• Charitable or religious trusts registered under Section 12A or 12AA
  

Gifts Exempt – Received by Specified Institutions

Gifts received by the following institutions are exempt:

• Funds, trusts, institutions, universities, educational institutions, hospitals, or medical institutions established for charitable, religious, educational, or philanthropic purposes and approved by the prescribed authority
• Trusts created solely for the benefit of the relative of the individual (when received from the concerned individual)

Summary – Gift Tax Exemptions

The table below summarises the key provisions related to gift tax exemptions:

General Caution:
Due to extensive use of gifts in tax planning, gifts in India are often scrutinized by the tax authorities, especially when the amount is substantial. It is advisable to maintain proper documentation to establish the authenticity of the gift received and ensure that the donor has sufficient source of funds to justify the gift.

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