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What Is Gift Tax? – InkMyWill

What Is Gift Tax?

Taxation on Gifts under Income Tax Act, 1961 with provisions of Transfer of Property Act 1882:
Gift is transfer of certain movable or immovable property from one person to another without consideration. Gift Tax was introduced in India in year 1958 through Gift Tax Act, 1958 and made applicable through‐out out the country except the state of Jammu and Kashmir and as per Gift Tax Act, all gifts in excess of INR 25,000 received from one who doesn’t have blood relation with the recipient, were taxable.
This act continued for 40 years with many changes being introduced therein and it was Finance Act 1998 that Gift Tax was abolished and however in 2004 , tax on gifts was again introduced through section 56(2)(Vii) of Income Tax Act which made Gift Tax applicable to state of Jammu and Kashmir as well.
Provisions under Income Tax Act:
Section 56(2)(V) and 2(24)(XIII) were introduced in Income Tax act to provide for the provisions of Gift Tax. Any amount received in contravention of the provisions under section 56(2)(V) shall be taxable under the head “ Income from other sources”.
Provision Contained in Sec-56(2)(Vii)-
Where an individual or HUF receives in any previous year, from any person or persons‐
  • Any sum of money, without consideration, the aggregate value of which exceeds INR 50,000/‐, the whole of the aggregate value is taxable,
  • Any other movable and immovable property,‐
    • Without consideration, the stamp duty value of which exceeds INR 50,000/‐, the stamp duty value of such property is taxable.
    • Received for a consideration which is less than the stamp duty value of the property and difference is more than INR 50,000/‐ then such difference is taxable
 
Property means the followings capital assets of the assessee, namely:‐
i. Immovable property being land or building or both.
ii. Shares and securities
iii. Jewellery
iv. Archaeological collection,
v. Drawings,
vi. Paintings,
vii. Sculptures,
viii. Any work of art,
ix. Bullion.
This clause shall not apply to any sum of money or property received from:
1) Any Relative
2) On occasion of marriage
3) Under a will or by way of inheritance
4) In contemplation of death of payer or donor
5) From local authority
6) From Charitable Trust registered u/s 12AA
7) From Any Trust, Foundation etc. referred u/s 10(23c).
Relatives means
– Spouse of Individual
– Brother & Sister of Individual
– Brother & Sister of Spouse of Individual
– Brother & Sister of either of the parents of Individual
– Any Lineal ascendants or descendants of the individual
‐Any Lineal ascendants or descendants of the spouse of the individual.
 Provisions of Transfer of Property Act, 1882:
Section 122 of Transfer of Property Act defines gift as a Transfer of certain movable or immovable property made voluntary and without consideration by one person called Donor to another person called Donee and such acceptance must be made during life time of donor. If donee dies before acceptance the gift is void.
Hence essential elements of gift are:
1) There must be transfer of ownership
2) The property must be existing property i.e. a gift of future property is void.
3) Transfer without consideration
4) Transfer must be made voluntarily i.e. with free consent
5) Gift must be accepted by donee during the lifetime of donor
Kinds of Gift:
1) Conditional Gift: Section 126 of Transfer of Property Act, where a gift takes effect on the happening or non‐happening of any specified event which does not depend on the will of the donor.
2) Onerous Gift: Section 127 of Transfer of Property Act, a gift may be made of one thing or several things to the same person at one time. It may also be made of several things independently of each other. In any of these cases any one or more of the things may be burdened by some obligation. The question is if done can accept the gift in part and reject what is so burdened. Sec 127 says donee can take nothing by the deed of gift unless he accepts it fully that is to say, the done must accept the gift in its entirety else he cannot take anything at all.
3) Universal Donee: Section 128 of Transfer of Property Act, where gift consist of donor’s whole property , the donee is personally liable for all the debts due by and liabilities of the donor at the time of the gift to the extent of the property comprised therein.
Points need to be remember:‐
1) Gift received from relative is exempt.
2) Gift received on the occasion other than marriage from non‐specified person shall be taxable under the head income from other sources.
3) Money received whether in cash or cheque in excess of INR. 50,000/‐ from non‐specified persons shall be taxable.
4) Gift received in contemplation of death is not taxable.
5) There is no tax implication if HUF receives gift from any member of the HUF or purchase assets at lower price than stamp duty value/ Fair market value.
6) As per Hindu law HUF cannot make gift to anyone. Such gift is void ab initio.

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