While people receive gifts on birthdays, marriage, and other special occasions, not everyone understands their tax implications. As per the Income-tax Act, the gift tax liability rests on the receiver, not the donor. So, if you have received gifts during the year, you should know whether you need to pay taxes and how much you should pay.

What Is A Gift Tax? 

The Income-tax Act has classified gifts into monetary gifts (cash, cheque, bank transfer, draft), movable property (shares/securities, jewellery, archaeological collections, drawings, paintings, sculptures, bullion and any artwork), and immovable property (land and building). Monetary gifts are the most common, and all these categories are liable for tax if the total value exceeds Rs 50,000. However, there are certain exceptions where monetary gifts are not taxed.

What Are The Exceptions? 

The exceptions are if the money is received from relatives (spouse, brother, sister, spouse’s brother or sister, parents’ brother or sister, any lineal ascendant or descendent, or any relatives’ spouses. Monetary gifts received on marriage or as inheritance are not taxed.

Any gift received from the local authorities, educational institutions, hospitals, or medical institutions is also not taxed, subject to certain conditions. So presents received in marriage will not attract tax, but those received on birthdays, anniversaries, etc., will. Also, gifts received from friends are taxable as they do not come under the ‘relative’ category.

How to Know The Tax Liability 

When the total gift amount is more than Rs 50,000, it is liable for tax. According to the Income-tax Act, the gift value is the “aggregate value of such sum received during the year”. So, for instance, if the aggregate amount received in a year is Rs 49,000, it will not be taxable, but if it becomes Rs 55,000, the entire amount will be taxable, not on the excess amount of Rs 5,000.

For example, as provided on the income tax website, suppose Kumar receives the following gifts during FY2023-24

• Rs. 184,000 from his friend in Canada.
• Rs. 25,200 from his elder brother in Delhi.
• Rs. 84,000 from his friend in Delhi on his birthday.

His tax liability will be in the following manner.

• Rs. 184,000 will be fully taxed as his friend is not a ‘relative’.
• Rs. 25,200 from his elder brother will not be taxed as he’s a ‘relative’.
• Birthday gifts are not excluded from tax; hence Rs 84,000 will be fully taxed.

The gift tax is applicable as per the receiver’s income tax slab rate. So, a person falling in the 30 per cent slab will pay a higher rate than someone in the 20 per cent or below category.