Understanding Gift Tax

Gifting is deeply rooted in Indian culture and is a standard part of auspicious festivals and life. It can take many forms, such as cash, jewellery, immovable property etc. Although many gifts do not have any tax implications, you may need to pay tax on some forms of gifts received.

Let’s take a closer look at the gift tax of India to understand the gift tax rates and exemptions.

Gift Tax Exemption List

The gift tax exemption list consists of the following:

• Cash or gifts worth Rs. 50,000 or less in a financial year
• Gifts received from blood relatives, spouses, or in-laws. There is no limit on the value of the gifts received in such a case.
• Jewellery or immovable property received as a gift on the occasion of your marriage.
• Money is the movable or immovable property received as part of an inheritance or through the legal execution of a will.
• Gifts received from religious or charitable societies, organisations, or trusts.

For such gifts, there is no gift tax applicable.

Gift Tax Applicable Scenarios

For gifts received that do not qualify for an exemption, as listed above, the gift tax is calculated depending on the nature of the gift, its value, and your tax status. Here are some of the common scenarios:

Conclusion

Understanding the gift tax is essential to assess your tax obligations and avoid defaulting on them. Furthermore, it helps you plan your finances more judiciously. Another way to plan your finances well is by keeping a firm track of expenses using Fi Money.

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Frequently Asked Questions

1. What is the annual gift tax exclusion?

Gifts from blood relatives, spouses, parents, or in-laws are exempted from gift tax. Furthermore, gifts received during the recipient's marriage are also exempted. Other gifts received with a value of Rs. 50K or less in a financial year are excluded as well.

2. Are there any exceptions or exclusions to the gift tax?

Yes, a gift received from family members and in-laws is an exclusion to the gift tax rule, with no maximum limit on the value of the gift. Gifts worth less than Rs. 50K in a financial year are also exempted and require no proof.

3. What types of gifts are subject to gift tax?

Cash received over Rs. 50K, immovable property with a stamp duty value above Rs. 50K and movable property like jewellery, paintings etc., with a fair market value greater than Rs. 50K are all subject to the gift tax. If you have paid any purchase value for movable and immovable property, then the delta between the purchase and current market values is taxable if it exceeds Rs. 50K.

4. How is the value of a gift determined for gift tax purposes?

If the gift you have received is taxable, then it may fall under one of two categories. Either you have received or inherited it without paying anything or may have spent a nominal amount less than its current market value. In the case of the former, if the value of the gift exceeds Rs.50K then the entire amount is taxable.

5. Are there any reporting requirements for gifts?

The reporting requirements for gifts are somewhat subjective. Typically, you don’t need to report gifts with an aggregated value of less than Rs. 50K in a financial year. However, it is advisable to maintain the paperwork for them, nonetheless.