Money Masterclass | How are gift items taxed?

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Every Indian with an annual income of Rs 2.5 lakh and above is liable to pay an income tax to the government. But are you aware that gifts that exceed a specific threshold and might qualify as tax invasion if the associated tax isn’t paid? The Gift Tax Act, which was adopted in 1958, was repealed in 1998, and as a result, both giver and receiver of gifts were no longer required to pay taxes on gifts received or given.

However, with that, section 56(2)(v) was introduced under the Finance Act 2004 for taxing gifts only in the hands of the receiver. The current law, which was again revised in 2017, mentions that gifts received by any person or individuals are taxed at the recipient’s normal tax rate under the head ‘Income from other sources.’

“The intention behind taxing gifts as ‘income from other sources is to prevent misuse of money that was often transferred to one under the precedence of gifts. Primary things to cinder here are: what is the gift, what is worth, and who is the receiver/giver in the exchange. Gifts from relatives in the form of money, jewellery, property, vehicle, etc. are tax-free. But those above Rs 50,000 from a non-relative that is anyone who falls outside the definition of ‘family’ under the Income Tax Act becomes taxable for that financial year,” Dr Sharad Kohli, tax guru and founder at KCC Group said.

As per the I-T Act, your spouse, brother or sister, spouse’s brother or sister, brother or sister of either of the parents, your spouse’s or your lineal descendent and ascendant, and brother’s or sister’s spouse come under ‘family’. Gifts received from them are not considered part of the extended income or ‘income from other sources’.

For example, parents who give their son/daughter Rs 95,000 or a plot of land as a gift is tax-exempt. However, the same gift from a friend or colleague is taxed. In short, gifts received from non-specified families or acquaintances are taxable.

Meanwhile, inheriting ancestral property (residential and commercial), jewellery, cash, and bank balance as part of a will is not accounted for additional tax.