All you need to know: Tax treatment of monetary gifts

Closeup of woman hands counting money against white background Rupee.

On many occasions, most of you might have received some gifts, in cash or some other kind from your friends, colleagues, relatives or parents. The occasion could have been your birthday, your promotion, your wedding or wedding anniversary or some achievement. You must have either wondered whether to pay tax on these gifts or you must have been nonplussed as to the tax treatment of these gifts. The following is the lowdown on tax treatment of such gifts under various provisions of the Income Tax Act.

From the taxation point of view as per the IT Act, a gift is classified as follows:

1. Any sum of money received without consideration is termed as ‘monetary gift’.

2. Specified movable properties received without consideration is termed as ‘gift of movable property’.

3. Specified movable properties received at a reduced price (i.e. for inadequate consideration) is termed as ‘movable property received for less than its fair market value’.

4. Immovable properties received without consideration is termed as ‘gift of immovable property’.

5. Immovable properties acquired at a reduced price (i.e. for inadequate consideration) is termed as ‘immovable property received for less than its stamp duty value’.

The good news is that gift in any form mentioned here is not chargeable to tax if you have received the same from your relatives.

Now hold on! Before you get further ideas, IT Act clearly defines who is a “Relative”.  A relative for this purpose means:

a Your Spouse

b Your Brother or sister

c Brother or sister of your spouse (As amended by Finance Act, 2019)

d Brother or sister of either of your parents

e Any of your lineal ascendant or descendent

f Any lineal ascendant or descendent of your spouse

g Spouse of the persons referred to in (b) to (f).

Taxability of monetary gifts

Since taxation of gifts other than monetary gifts is a little complicated let us try to understand the taxability of monetary gifts received by you from persons other than your relatives.

Monetary gifts received

Monetary gifts received by you without consideration during any event or occasion other than marriage from your friends and colleagues is not chargeable to tax if the aggregate value of such sum received during the year is less than Rs 50 ,000.

The important point to be noted here is the “aggregate value of such sum received during the year”.

The taxability of the gift is determined on the aggregate value of gifts received during the year and not based on individual gift. Hence, if the aggregate value of gifts received by you during the year exceeds Rs 50,000, then [As amended by Finance Act, 2019]  the entire 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).

Illustration

Let us try to understand the taxability of gifts through the following illustration. You received the following gifts during the financial year 2018-19:

1 Rs 30,000 from your colleagues on your promotion.

2 Rs 40,000 from your friends on your birthday.

3 Rs 1 lakh received during your wedding.

While Rupees one lakh received from your relatives is exempt from tax, the entire aggregate value of monetary gift of Rs 70,000 received during your promotion and birthday (And not Rs 20,000 i.e. Rs 70,000 minus Rs 50,000) will be added to your income and taxed accordingly.

Monetary gifts received by you in the following cases also is not charged to tax.

Money received under will/ by way of inheritance.

Money received in contemplation of death of the payer or donor.

Money received from a local authority [as defined in Explanation to section 10(20) of the Income-tax Act].

Money received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C).

Money received from a trust or institution registered under section 12AA.

So, what is stopping you? Go ahead and continue to accept gifts from your relatives and friends without fretting about the tax aspects.

(The writer is a former banker and a CFA and is currently working with Manipal Academy of Banking, Bengaluru).

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