What are the tax implications of receiving a gift?

No, you aren't.

However, if the gift were from a non-relative, let's say a friend, you would've needed to pay taxes to be on the right side of the law.

When it comes to the tax treatment of gifts, the rules are pretty specific. Gifts received from relatives are fully exempt. Gifts from non-relatives up to ₹50,000 per year are also exempt.

Gifts worth above ₹50,000 from non-relatives are taxed on the aggregate gift value. Meaning that if the gift value is ₹75,000, the tax will be applicable on the entire amount.

 

There are a couple of exceptions to this rule. First is marriage. Gifts received by the bride and groom from relatives and non-relatives are exempt. So are gifts under the will, by inheritance, or by a donor at his death.

The government introduced a gift tax in April 1958, regulated by the Gift Tax Act, 1958 (GTA), to impose taxes on giving and receiving gifts under certain specific circumstances. The Act covered gifts in the form of cash, demand drafts, bank cheques or anything valuable.

The Act was repealed in 1998, and the taxation of gifts was later incorporated into the Income Tax Act under Section 56(2).

Gift from a relative vs an employer

The definition of "relatives" for the purpose of gift tax exemption is extensive. It includes your spouse, parents, grandparents, siblings, siblings of your spouse, siblings of your parents and direct lineal ascendants and descendants.

Section 56(2) of the Income Tax Act states that any sum of money or any property received without consideration (i.e., as a gift) is taxable as "income from other sources" if the value of such a gift exceeds ₹50,000 in a fiscal year, except in the case of gifts received from relatives.

However, the Act considers gifts received from an employer differently. These are considered a perquisite and are taxable as part of the employee's salary income. The value of the gift is added to the employee's total income and taxed accordingly.

There are exceptions: Gifts on ceremonial occasions or rituals, up to a limit of ₹5,000 per occasion, are tax-exempt.

Besides, as per an amendment to income tax provisions, the gift of money exceeding ₹50,000 made by a resident to a non-relative non-resident of India (NRI) is taxable in India since 2019, according to Prakash Hegde, principal consultant–direct taxation at Acer Tax & Corporate Services, a Bengaluru-based management consulting firm.

Why you should report gifts

There are good reasons to report gifts in your income tax return (ITR), even if they are exempt from tax. “Reporting gifts provides documentation and proof of the source of funds, which can be helpful if the income tax authorities ask about the source of any investments or expenditures in the future. This can help reduce unnecessary scrutiny or questions," says Hegde.

There are many instances where people had to undergo detailed scrutiny due to gifts of sums/properties received, particularly when the amount involved was substantial.

Taxpayers can report any exempt income in the EI (exempt income) schedule in the ITR. However, Hegde points out that the EI schedule does not have a specific column for reporting gifts. They can be reported in the "other exempt income" column.

“Any amount received from a relative is exempt, and ideally, this should be shown under the exempt income schedule. This is particularly important when dealing with items like jewellery, which may be sold in the future," says Nitesh Buddhadev, founder of Nimit Consultancy.

Gifts from non-relatives should be shown in the income tax report, adds Buddhadev.

Gifts from an employer will be part of the employee’s salary. "For example, when an employee is given an Amazon voucher as a quarterly bonus, it would be included in Form 16," says Buddhadev, emphasizing that while it’s the employer’s duty to deduct tax on such gifts, it's prudent for employees to report them and pay any applicable taxes if TDS (tax deducted at source) is not deducted.