Gift Tax in India: Applicability, Exemptions and Rules

What is the Definition of Gift as per the Income Tax Act?

As per the Income Tax Act, any money, immovable/movable property received by an individual from another individual/organization without having to pay any consideration for it is termed as a “gift”. Talking about taxation, a gift can be classified in the following manner -

• Money is received in cash, bank transfer, or cheque.
• Movable property such as shares, bonds, jewelry, paintings, and sculptures, including movable properties received at reduced prices or prices less than fair market value.
• Immovable property like residential land and buildings, commercial/residential property, and immovable properties acquired at a lesser price than its stamp value.

Who pays tax on gifts?

A common misunderstanding is that the person giving a gift pays tax. In India, it is usually the person receiving the gift who is taxed, not the giver. Any gift received from a relative as defined under the Income Tax Act, such as parents, spouse, siblings, or children is not taxable in the hands of the recipient, irrespective of the amount received, In other words, there is no limit on the amount of tax-free gifts you can receive from your relatives.

However, if any gift received from a person other than a relative exceeds the value of Rs.50,000 in a year, then the entire amount received as a gift is taxable.

For example, If a taxpayer receives a gift of Rs.40,000 from another person, then the entire amount will be exempt from tax. On the other hand, if the same person receives a gift worth Rs.60,000 during the year from another person, then the entire amount will be taxable at the applicable rates.

Taxation on Gifts – Exemption

As mentioned above, gifts received from relatives are not taxable under the Income Tax Act. Below is a list of persons who are defined as relatives as per the Income Tax Act -

1. Spouse of the individual.
2. Individual’s Brother or sister
3. Brother or sister of the individual’s spouse.
4. Brother or sister of either of the individual’s parents.
5. Individual’s Lineal ascendant or descendant.
6. Lineal ascendant or descendant of the individual’s spouse.
7. Spouse of the persons referred to in (2) to (6).
8. A gift received from a step-sibling qualifies as exempt under Section 56(2)(vii) of the Income Tax Act,

Note: Gifts received from the members of a HUF are exempt from Tax.

Furthermore, When you sell a gifted asset, you don’t use its value at the time you received it. Instead, you have to use the original purchase price paid by the person who gifted it. This can make a big difference.

For example, if someone bought a property years ago at a low price and gifted it to you, and you later sell it at today’s higher price, your profit is calculated based on that old, lower cost. Which means your taxable gain becomes much higher—and so does your tax.

Gift Tax Exemption Relatives List

Cash or gifts received upto Rs.50,000 during a financial year are exempt from tax; however, in case of gifts of a value higher than this threshold, the entire amount is taxable in the hands of the recipient.

• Gifts Exceeding Rs.50,000 - For example, if you receive gifts worth Rs.50,000 in a year, the entire amount will be exempt from tax. On the other hand, if you receive gifts worth more than Rs.50,000, let’s say, Rs.75,000, then the entire amount is taxable in the hands of the recipient at the given slab rate.
• Property Received for Inadequate Consideration - In case you receive property for a higher price, then the difference between stamp duty and consideration is considered a taxable gift. For example, if you are gifted a flat worth Rs.50 lakh and you pay a consideration of Rs.30 lakhs, then the excess of Rs.20 lakhs will be considered a taxable gift. At the same time, if the difference lies within the threshold of Rs.50,000, then it does not attract income tax.
• Gifts from Relatives - Gifts received from relatives as specified in the Income Tax Act. These relatives include mother, father, brother, sister and spouse. Even though the gift is exempt in the hands of the recipient, any income generated from the gift received from a relative might be taxable under the clubbing provisions of the Income Tax Act. For example, if a person receives Rs.5,00,000 as a gift from a relative, this amount will not be charged to the tax. However, if this amount is invested in an FD, then the returns on such FD will be subject to tax.
• Gifts at Wedding - Gifts received by a newly married couple on the occasion of their marriage are exempt from tax. Wedding gifts can include cash, jewelry, house property, stock or gold. Irrespective of the amount or from whom they are received, gifts received on a wedding are exempt from tax.
• Gifts by way of Inheritance or Will - Gifts received by way of will or inheritance are exempt from tax as per the provisions of the Income Tax Act 1961.
• Gift Received from Local Authority or Charitable Trust - Any money received from a local authority, charitable trust, fund, foundation, university, or any other local authority registered under section 12A is exempt from tax. Also, money received by a meritorious student from college/university or a patient under medical care is exempt from tax.

Gift Taxation Rules for NRIs

• NRIs can receive gifts from both residents and other NRIs in the form of money, property, shares, jewellery, and other assets. The tax treatment generally depends on the relationship with the donor and the value of the gift.
• Gifts received from specified relatives are fully exempt from tax in India, irrespective of the amount received.
• Gifts received from non-relatives become taxable if the total value of such gifts exceeds ₹50,000 during a financial year. In such cases, the entire value of the gift is taxed under the head “Income from Other Sources.”
• Gifts received on the occasion of marriage, through inheritance, under a will, or in contemplation of the donor's death are exempt from tax, even if the value exceeds ₹50,000.
• An NRI can receive gifts from a resident Indian, subject to FEMA regulations. Currently, a resident can gift funds to an NRI within the overall Liberalized Remittance Scheme (LRS) limit of USD 250,000 per financial year.
• If an NRI receives an immovable property as a gift from a non-relative without consideration, the property's stamp duty value may become taxable if it exceeds the prescribed threshold. Similar rules apply to shares, securities, jewelry, and other specified assets.
• Any income earned from the gifted asset, such as rent from a gifted property or interest and dividends from gifted investments, may be taxable according to the applicable provisions of the Income Tax Act.
• NRIs should also check the tax rules of their country of residence, as a gift that is exempt in India may still have reporting or tax implications in another country.

How do you calculate the taxable value of a gift?

Given below is a table that presents the information that you need to compute the taxable value of a gift -

How do you Declare Tax on Gifts in India?

Earlier, the payment of tax on gifts was the responsibility of the donor. However, as per the current Income Tax Rules, the donee, i.e., the receiver, is responsible for declaring the gifts received during the year and paying tax on them.

In order to calculate the tax payable, the donee has to declare the value of the gift while filing an Income Tax Return under the head “Income from other sources”. The value of the gift that is subject to tax forms a part of the donee’s total income and is subject to tax at the applicable tax rates.

If you earn any income from transferred assets, you’ll need to report it in your tax return—usually under ITR-2 or ITR-3, depending on the nature of income. And if there’s any taxable gain, filing your return isn’t optional—it’s mandatory.

To stay on the safe side, it’s important to keep your paperwork in order. This includes things like gift deeds, bank records, and proof of relationship.

Missing disclosures or reporting things incorrectly can lead to notices, penalties, or even reassessment—something you definitely want to avoid.

Provisions Relating to Stamp Duty for Gift Taxation

The rules for considering stamp duty value in such cases are mostly the same as Section 50C. Here is a simplified explanation in the context of gift taxation:

• If the date of agreement and the date of registration are different, the stamp duty value as on the agreement date can be considered. However, this applies only if the payment (fully or partly) has been made on or before the agreement date through banking channels such as an account payee cheque, bank draft, or electronic transfer.
• If the taxpayer disputes the stamp duty value, the Assessing Officer must refer the matter to a Valuation Officer (VO). The VO will determine the fair value and issue a written order.
• For gift tax purposes, the lower of the stamp duty value or the value determined by the Valuation Officer will be taken into account.
• In case of immovable property, if the stamp duty value exceeds the actual consideration, a margin of up to 10% is allowed. Differences within this limit will not be treated as income under “Income from Other Sources.”