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How are Gifts Taxed? – Gift Tax Exemption Relatives List

Gift Tax

Introduction

A very common and frequent question running in the mind of taxpayers is the taxability of gifts. In this part, you can gain knowledge about various provisions relating to taxability of gift received by an individual or a Hindu Undivided Family (HUF) i.e. sum of money or property received by an individual or a HUF without consideration or a case in which the property is acquired for inadequate consideration.

 

Classification of Gift

Gift can be classified as follows:

  1. Any sum of money received without consideration, it can be termed as ‘monetary gift’.
  2. Specified movable properties received without consideration, it can be termed as ‘gift of movable property’.
  3. Specified movable properties received at a reduced price (i.e. for inadequate consideration), it can be termed as ‘movable property received for less than its fair market value’.
  4. Immovable properties received without consideration, it can be termed as ‘gift of immovable property’.
  5. Immovable properties acquired at a reduced price (i.e. for inadequate consideration), it can be termed as ‘immovable property received for less than its stamp duty value’.

 

Exemption List From Gift Tax

In following cases, gift received by an individual or HUF will not be charged to tax:-

  • Gift received from relatives.
  • Gift received on the occasion of the marriage of the individual.
  • Gift received under will/ by way of inheritance.
  • Gift received in contemplation of death of the payer or donor.
  • Gift received from a local authority
  • Gift received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution.
  • Gift received from or by a trust or institution.
  • Gift received by any fund or trust or institution any university or other educational institution or any hospital or other medical institution.

 

Relative Defination For Gift Tax

Below is a list of persons who are defined as relatives as per the Income Tax Act –

A. In case of an Individual

  1. Spouse of the individual;
  2. Brother or sister of the individual;
  3. Brother or sister of the spouse of the individual;
  4. Brother orsister of either of the parents of the individual;
  5. Any lineal ascendant or descendent of the individual;
  6. Any lineal ascendant or descendent of the spouse of the individual;
  7. Spouse of the persons referred to in (2) to (6).

B. In case of HUF, any member thereof.

 

 

Taxibility of a Gift

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

Type of Gift Gift Tax Applicability Taxable Value Value of Gift
Cheque, cash, or bank transfer If the value exceeds Rs. 50,000 The entire amount received as gift.
Immovable property, like buildings, land, etc., was received without making any payment.  If the stamp duty value exceeds Rs. 50,000 Stamp duty value of the property received as a gift
Immovable property that is bought for inadequate consideration  If the stamp duty of the immovable property received as a gift is more than the purchase price by Rs. 50,000 or more, and 10% of the consideration then gift tax is applicable.  The difference between the stamp duty and the purchase price of gifted property is subject to tax.
Movable assets., without paying any consideration. If the fair market value of the gift is Rs. 50,000 The fair market value of the gift
Movable Assets for consideration  In case the fair market value of the gift exceeds the purchase price by Rs. 50,000 or more.  The difference between the fair market value and the purchase price of the present is taxable.

property” means the following capital asset of the assessee, namely:—

  (i) immovable property being land or building or both;

 (ii) shares and securities;

(iii) jewellery;

(iv) archaeological collections;

 (v) drawings;

(vi) paintings;

 (vii) sculptures;

(viii) any work of art; or

(ix) bullion;

 

Illustration [In case of Immovable property]
On 1-4-2023, Mr. Raja (a salaried employee) purchased a building from Mr. Kumar for Rs. 25,20,000. The value of the building adopted by the Stamp Valuation Authority for charging stamp duty was Rs. 28,00,000. Advice Mr. Raja regarding the tax treatment in this case.

If an individual purchases a capital asset, being an immovable property, and the stamp duty value of such property exceeds actual consideration by higher of Rs. 50,000 and 10% of the actual consideration, then the excess of stamp duty value over the purchase price will be charged to tax in the hands of the purchaser.

In the instant case, building is a capital asset for Mr. Kumar. The stamp duty value of the building exceeds the actual consideration by Rs. 2,80,000 which is higher than Rs. 50,000 and 10% of the actual consideration of Rs. 25,20,000, i.e., Rs. 2,52,000.

Hence, the above discussed provision shall apply and the differential amount of Rs. 2,80,000 (Rs.28,00,000 less Rs. 25,20,000) will be treated as income of Mr. Kumar.

 

 

MCQ on Gift Tax 

Q1. Sum of money received by an individual or HUF without consideration the aggregate value of which exceeds during the year will be charged to tax.
(a) Rs. 10,000 (b) Rs. 25,000
(c) Rs. 50,000 (d) Rs. 1,00,000
Correct answer : (c)
Justification of correct answer : If the following conditions are satisfied then any sum of money received without consideration (i.e., monetary gift may be received in cash, cheque, draft, etc.) by an individual/ HUF will be charged to tax:
• Sum of money received without consideration.
• The aggregate value of such sum of money received during the year exceeds Rs. 50,000. Thus, option (c) is the correct option.
Q2. Sum of money received from brother or sister of the spouse of the individual will not be charged to tax in the hands of the individual.
(a)True (b) False
Correct answer : (a)
Justification of correct answer : Sum of money received from relatives will not be charged to tax in the hands of an individual or HUF. As per the definition of the relative, brother or sister of the spouse of an individual will be treated as relative of an individual. Hence, sum of money received from brother or sister of the spouse of the individual will not be charged to tax in the hands of the individual.
Thus, the statement given in the question is true and hence, option (a) is the correct option.
Q3. Money received by a HUFfrom its members will be charged to tax in the hands of HUF since members cannot be treated as relatives of a HUF.
(a) True (b) False
Correct answer : (b)
Justification of correct answer : As per the definition of relatives, members of HUF will be treated as relatives of the HUF and money received from relatives will not be charged to tax. Hence, money received by a HUF from its members will not be charged to tax in the hands of HUF. Thus, the statement given in the question is false and hence, option (b) is the correct option.
Q4. If the aggregate value of gifts received during the year exceeds Rs. 50,000, then received during the year will be charged to tax.
(a) Value of gifts in excess of Rs. 50,000
(b) Value of gifts up to Rs. 50,000
(c) Total value of all such gifts
(d) Value of gifts up to Rs. 25,000
Correct answer : (c)
Justification of correct answer : If the aggregate value of gifts received during the year exceeds Rs. 50,000, then total value of all such gifts received during the year will be charged to tax (i.e. the total amount of gift and not the amount in excess of Rs. 50,000).
Thus, option (c) is the correct option.
Q5. The stamp duty value of immovable property received by an individual without consideration (i.e., as a gift) will be charged to tax if the same will exceed.
(a)Rs. 5,000 (b) Rs. 25,000
(c)Rs. 50,000 (d) Rs. 51,000
Correct answer : (c)
Justification of correct answer : If the following conditions are satisfied then immovable property received without
consideration by an individual or HUF will be charged to tax:
1) Immovable property, being land or building or both, is received by an individual/HUF.
2) The immovable property is a ‘capital asset’ within the meaning of section 2(14) for such an individual or HUF.
3) The stamp duty value of such immovable property received without consideration exceeds Rs. 50,000.
Thus, option (c) is the correct option.
Q6. Immovable property received without consideration by an individual on the occasion of his/her marriage will always be charged to tax in the hands of the individual.
(a) True (b) False
Correct answer : (b)
Justification of correct answer : Gift received on the occasion of marriage of the individual is not charged to tax.
Thus, the statement given in the question is false and hence, option (b) is the correct option.
Q7. If an immovable property acquired by an individual for a consideration which is less than the stamp duty value and the difference exceeds Rs. 50,000, and 10% of the actual consideration than the excess of stamp duty value over the purchase price of the property will be treated as income of the seller.
a) True (b) False
Correct answer : (b)
Justification of correct answer : If an immovable property acquired by an individual for a consideration which is less than the stamp duty value and the difference exceeds Rs. 50,000, and 10% of the actual consideration then the excess of stamp duty value over the purchase price of the property will be treated as income of the purchaser and not of the seller.
Thus, the statement given in the question is false and hence, option (b) is the correct option.
Q8. Gift of motor car (fair market value is Rs. 84,000) received by an individual from his friends will be charged to tax since the fair market value exceeds Rs. 50,000.
(a) True (b) False
Correct answer : (b)
Justification of correct answer : Motor caris not covered in the definition of prescribed movable property. Hence, nothing will be charged to tax in case of gift of motor car received by an individual from his friends even though the fair market value exceeds Rs. 50,000.
Thus, the statement given in the question is false and hence, option (b) is the correct option.
Q9. If the aggregate fair market value of prescribed movable property received by the taxpayer during the year exceeds Rs. 50,000, than will be charged to tax.
(a) Fair market value up to Rs. 50,000
(b) Fair market value in excess of Rs. 50,000
(c) Entire fair market value
(d) Fair market value up to Rs. 25,000
Correct answer : (c)
Justification of correct answer : If the aggregate fair market value of prescribed movable property received by the taxpayer during the year exceeds Rs. 50,000, than entire fair market value will be charged to tax.
Thus, option (c) is the correct option.

Q10. Gift of movable property received from a local authority [as defined under section 10(20) of the Income-tax Act] will always be charged to tax.
(a) True (b) False
Correct answer : (b)
Justification of correct answer : Gift of movable property received from a local authority [as defined in Explanation to section 10(20) of the Income-tax Act] will never be charged to tax in the hands of an individual or a HUF.
Thus, the statement given in the question is false and hence, option (b) is the correct option.

 

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