Are all gifts taxable in India? Discover the rules that apply

Receiving a gift, whether it’s cash, property, or a sentimental item, is always a delight. However, not all gifts come without strings attached - some may bring a tax bill along with them. Gift-giving is a cherished part of Indian culture, often reflecting love, respect, and generosity. While many gifts are modest, some, like real estate, jewellery, or artwork, can hold substantial value. 

In India, certain gifts are taxable under specific circumstances, and understanding these rules is essential to avoid unexpected tax liabilities. Knowing when a gift is tax-free and when it isn’t can save you from surprises down the line.

Let's understand the meaning of gift and history in Indian context.

In India, gifts are not always free from tax implications, and understanding the nuances of gift taxation is important for both the giver and the receiver. The concept of taxing gifts was reintroduced in 2004 after being abolished in 1998.

Under the current rules, any gift received without consideration that exceeds ₹50,000 in a financial year is subject to tax as income, in accordance with Section 56(2)(vi) of the Income Tax Act. This applies to both cash and non-cash gifts, including property and valuable items like jewellery.

Knowing these rules helps ensure compliance and avoid unexpected tax liabilities when exchanging gifts.

How much and whom taxes are applicable?

In India, understanding the taxation of gifts is key to avoiding unexpected liabilities. Gifts valued over ₹50,000 from non-relatives must be declared as income and are taxed according to your income tax slab rate, which ranges from 5% to 30%, depending on your total income. However, the term “close relatives” plays a crucial role, as gifts from these individuals are exempt from tax. According to the Income Tax Act, close relatives include:

- Your spouse.

- Your brother or sister.

- Your spouse’s brother or sister.

- Your parents or your spouse’s parents.

- Any lineal ascendant or descendant, such as grandparents or children.

- The spouses of the relatives mentioned above.

Gifts from these relatives are not taxable, irrespective of the amount. For instance, if you receive a gift worth ₹1 lakh from a friend, only ₹50,000 will be added to your income and taxed at the rate corresponding to your income slab. Understanding these rules ensures compliance and helps you navigate the nuances of gift taxation smoothly.

Tax exemption for gifts: What you need to know

Under Section 56(2)(x) of the Income Tax Act, certain gifts are exempt from taxation. Here’s a detailed look at the scenarios where gifts are not subject to tax:

On the occasion of marriage - Gifts received during a wedding, irrespective of their value, are not taxable. This includes cash, jewellery, property, and other valuable items gifted to the bride or groom.

From any relative - Gifts from close relatives such as parents, spouse, siblings, and in-laws are exempt from tax. The relationship must be defined under the Income Tax Act for the exemption to apply.

Through will or inheritance - Money or property received as an inheritance through a will or as part of an estate is tax-free. Since these assets are not purchased or paid for, they do not incur tax liabilities.

From any trust registered- Gifts from trusts registered, which are typically charitable or religious trusts, are exempt from tax. These trusts are recognized for their charitable purposes and the gifts they distribute are considered tax-exempt.

From medical institutions or hospitals - Gifts received from recognized medical institutions or hospitals are not taxable. This includes donations or financial support provided by these organisations.

By educational institutions or universities - Gifts received from educational institutions or universities are exempt from tax. This includes scholarships, grants, and other forms of financial aid provided by these institutions.

From local authorities - Gifts from local authorities are not subject to tax. These authorities include municipal bodies and other local government entities.

From an individual by a trust created solely for the benefit of the individual - If an individual receives gifts from a trust that was created specifically for their benefit, such gifts are tax-exempt. This ensures that personal trusts used for specific individual benefits do not incur additional tax burdens.

By a transaction not regarded as transfer- Certain transactions that are not considered transfers are also exempt. This includes transactions where no sale, exchange, or transfer of ownership occurs.

Personal items like cars, phones, TVs, furniture, watches, etc. - Gifts of personal items such as cars, phones, TVs, furniture, and watches are not taxable even if their value exceeds ₹50,000. These items are not covered, which means they do not attract tax despite their high value.

These exemptions help simplify the tax implications of receiving various types of gifts, ensuring that many common transactions are not subjected to additional tax liabilities.

In conclusion, gifts and inheritances can indeed be substantial financial gains, but understanding their tax implications is key to making well-informed decisions. By leveraging available exemptions, staying aware of potential indirect taxes, and consulting with professionals when necessary, you can navigate these financial events effectively and maximise the benefits you receive.

Remember, responsible wealth management involves more than just handling taxes. It also includes ethical considerations and fostering open communication to maintain familial harmony and long-term financial well-being.

Rohit Gyanchandani is Managing Director at Nandi Nivesh Private Limited