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Gift

TAX TREATMENT OF GIFTS RECEIVED BY AN INDIVIDUAL OR HUF

A very common and frequently question running in the mind of taxpayers is in the taxability of gifts. In this part you will gain knowledge about various provisions relating to taxability of gifts received by an individual or HUF.

KINDS OF TAXABLE GIFTS

  • Sum of Money:-Any sum of money received without consideration, it can be termed as ‘monetary gift’.
  • Movable Property: - Specified movable properties received without consideration or at a reduced price, it can be termed as ‘gift of movable property’.
  • Immovable Property: - Immovable properties received without consideration or at a reduced price, it can be termed as ‘gift of immovable property’.

 

TAXABLE EVENT

Tax treatment of sum of money received as gift by an individual or HUF
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.

Sum of money received without consideration by an individual or HUF is chargeable to tax if the aggregate value of such sum received during the year exceeds Rs. 50,000. The important point to be noted in this regard is the “aggregate value of such sum received during the year”. The taxability of the gift is determined on the basis of the aggregate value of gift received during the year and not on the basis of individual gift. Hence, 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)

Tax treatment of movable property received as gift by an individual or HUF
 If the following conditions are satisfied then value of prescribed movable property received by an individual or HUF will be charged to tax:
1) Prescribed movable property is received without consideration or at reduced price, and
 2) The aggregate fair market value of such property received by the taxpayer during the year exceeds Rs. 50,000.

 In above case, the fair market value of the prescribed movable property will be treated as income of the receiver. Prescribed movable property means shares/securities, jewellery, archaeological collections, drawings, paintings, sculptures or any work of art and bullion, being capital asset of the taxpayer. Considering the above definition, nothing will be charged to tax in respect of gift of any item being a movable property other than covered in the above definition, e.g., Nothing will be charged to tax in respect of a television set received as gift, because a television set is not covered in the definition of prescribed movable property.

 

Tax treatment of immovable property received as gift by an individual or HUF
 If the following conditions are satisfied than 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.

Exceptions:- In following cases, monetary gift, movable property and immovable property ( as gift)  received by an individual or HUF will not be charged to tax:-

  • Received from relatives.
  • Received on the occasion of the marriage of the individual.
  •  Received under will/ by way of inheritance.
  •  Received in contemplation of death of the payer or donor.
  •  Received from a local authority
  •  Received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C).
  •  Received from a trust or institution registered under section 12AA.

 

Relative for this purpose means:

  • In case of an Individual
  • Spouse of the individual;
  • Brother or sister of the individual;
  • Brother or sister of the spouse of the individual;
  • Brother or sister of either of the parents of the individual;
  • Any lineal ascendant or descendent of the individual;
  • Any lineal ascendant or descendent of the spouse of the individual;
  • Spouse of the persons referred to in (b) to (f).
  •  In case of HUF, any member thereof.

Illustrations:

  • Mr. Kumar received following gifts during the financial year 2017-18:

    Rs. 1,84,000 from his friend residing in Canada.
    Rs. 25,200 from his elder brother residing in Delhi.
    Rs. 84,000 from his friend residing in Delhi (received on the occasion of his birthday)
What will be the tax treatment of above items in the hands of Mr. Kumar?

  Rs. 1,84,000 received from his friend will be fully taxed because friend is not
  covered in the definition of ‘relative’.
   Rs. 25,200 received from elder brother will not be charged to tax because elder
   brother is covered in the definition of ‘relative’.
  Birthday is not covered in the list of prescribed occasion on which gift is not
  charged to tax, hence Rs.84,000 received on the occasion of birthday will be fully
   taxed.

  • During the financial year 2017-18, Mr. Raja received following gifts from his friends:

 Rs. 25,000 on 1-5-2017 (being his birthday)
 Rs. 18,000 on 20-12-2017
What will be the tax treatment of above gifts?

The aggregate amount of gift received by Mr. Raja during the year amounts to Rs. 43,000
(Rs. 25,000 + Rs. 18,000) which is below Rs. 50,000, hence, nothing will be charged to
tax in the hands of Mr. Raja.
Suppose, if in the given case, the amount of second gift is Rs. 28,000 instead of Rs.
18,000, then the aggregate amount of gift will come to Rs. 53,000 (Rs. 25,000 + Rs.
28,000). In this case, entire amount of Rs. 53,000 will be charged to tax in the hands of
Mr. Raja.

3.)        On 1-4-2017, 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. 26,00,000. Advice Mr. Raja regarding the tax treatment in
this case.

If a taxpayer purchases any immovable property (which is capital asset for him) for less
than its stamp duty value and the difference between the stamp duty value and the actual
Purchase price exceeds Rs. 50,000, then excess of stamp duty value over the purchase
Price will be charged to tax in the hands of the purchaser. It will be charged to tax under
the head “Income from other sources”.
In the given case, property is a capital asset for Mr. Raja. The stamp duty value adopted
by the Stamp Valuation Authority for charging stamp duty is Rs. 26,00,000 and the
Property is purchased for Rs. 25,20,000 i.e. for less than the stamp duty value, hence, the
above discussed provision will apply and the difference of Rs. 80,000 (Rs. 26,00,000 less
Rs. 25, 20,000) will be treated as income of Mr. Raja.

4.)         During the financial year 2017-18, Mr. Raja received following gifts from his
Friends/relatives:

  • Shares received from his father, the fair market value (i.e. value as per stock

       Exchange) of the shares on the date of gift was Rs. 2,84,000.

  •  Jewellery received from his friend, the fair market value of the jewellery is Rs.

       84,000.

  • Jewellery received from his friends and relatives on the occasion of his marriage,

       the fair market value of jewellery is Rs. 2,52,000.

  • Furniture amounting Rs. 70,000 Received from friend without consideration.

 Advice Mr. Raja regarding the tax treatment of above gifts.

1) Nothing will be charged to tax in respect of shares received from his father, since
father comes under the definition of the term ‘relative’.
2) Friend is not covered in the definition of relative and hence, in respect of
jewellery received from his friend, the fair market value, i.e., Rs. 84,000 will be
charged to tax in the hands of Mr. Raja.
3) Marriage is covered in the list of specified occasions, and hence, nothing will be
  charged to tax in respect of jewellery received from his friends and relatives on  the occasion of his marriage.
4)  Furniture is not covered in the definition of movable property, hence it is not taxable.