A “gift” is money or property received without payment, as defined by the Income-tax Act. The donor could be a person or an organisation, while the receiver is called the donee. People sometimes use gifts as a means of tax evasion, which is prohibited and can result in penalties.

Here’s all you need to know about gift tax:

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Gift Tax In India

For the first time, the government introduced the Gift Tax Act in 1958 to impose taxes on gifts subject to certain conditions. Gifts could be cash, demand drafts, bank checks, and valuable articles. However, it repealed the Act in 1998, making all donations exempt from taxes, before reinstating a revised version in 2004.

Who Has To Pay Gift Tax?

Any person who receives money as gifts is taxable provided the amount is more than Rs 50,000 in a financial year. The cash received as a gift will be considered for taxation as part of the individual’s gross annual income. In other words, a gift received not as compensation and has a fair market value of more than Rs 50,000 is taxable for the donee.

Suppose the gift’s worth is less than its fair market value (FMV), and the difference surpasses Rs 50,000. In that case, the tax department will include the FMV difference and the amount for consideration in income, which will be subject to applicable taxes.

Gift Tax Exemption

Relatives: Certain gifts received from relatives like spouses, siblings, parents, lineal ascendants or descendants, etc., are exempt from tax, regardless of the occasion. Gifts received under a will, by way of inheritance, or in contemplation of the donor’s death are also exempt.

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Non-Relatives: Additionally, gifts received from local authorities, charitable and religious trusts, educational and medical institutions, and certain approved funds or trusts are exempt from gift tax.

Hindu Undivided Family (HUF): Gifts received on the total or partial partition of a Hindu Undivided Family (HUF) are exempt from tax, as well as gifts from trusts established solely for the benefit of an individual’s relatives. However, it’s important to maintain documentation to prove the genuineness of the gift and the source of funds to justify it, especially for large amounts, as such gifts will come under scrutiny by the income tax department.