In this weekly series, Dr Suresh Surana, Founder, RSM India, a tax consultancy firm, explains the taxation of various kinds of gifts shared through Gift Deeds.
A Gift deed would refer to a legal document by way of which the Donor of immovable or movable property transfers his/her property to the Donee as a gift. The taxation of gifts has to be examined from the perspective of the donor (i.e. the giver of the gift) as well as the donee (recipient of the gift). There is a specific exemption provided under section 47 of the Income Tax Act ( ‘IT Act’) to the donor of a gift. Also, from the recipient’s perspective in certain cases, there is an exemption on taxation in the hands of receipt by individuals from ‘close relatives’, at the time of marriage, by way of inheritance, etc.
Subject to the above provisions mentioned in brief, the tax implications for gifts would be as follows:-
Movable property as gift
The taxation aspects of gifting a movable property from the perspective of the donor (i.e. the giver of the gift) is as discussed above i.e. it would be exempt under section 47 of the IT Act. However, the taxation in the hands of the Donee (i.e. recipient) of movable property is as under:
Where the movable property is gifted without consideration, the entire Fair market value (FMV) of such movable property would be chargeable to tax in the hands of the recipient provided the same exceeds Rs. 50,000.
- For inadequate consideration
In case of an immovable property which is gifted for an inadequate consideration i.e. actual consideration is less than the FMV by an amount that exceeds Rs.50,000, then the differential amount between the FMV and the actual consideration shall be chargeable to tax under the head Income from other sources.
It is pertinent to note that the above provisions would only apply in case of specified movable property such as shares/securities, jewellery, archaeological collections, drawings, paintings, sculptures or any work of art and bullion, being capital asset of the taxpayer and includes Virtual Digital Asset (VDA). As such, nothing will be charged to tax in respect of gift of any item being a movable property other than aforementioned.
Also Read: How is money gifted by Indian parents to NRI children and relatives taxed?
Immovable property as gift
The taxation aspects of gifting an immovable property from the perspective of the donor (i.e. the giver of gift) is as discussed i.e. it would be exempt under section 47 of the IT Act. However, the taxation in the hands of the Donee (i.e. recipient) of immovable property is as under:
Where the immovable property is gifted without any consideration, entire value of the immovable property would be taxable provided the same exceeds Rs. 50,000. The value of property in such a case would be the stamp duty value which would be determined in accordance with the stamp duty reckoner rates.
- For inadequate consideration
In case of an immovable property which is gifted for an inadequate consideration i.e. the stamp duty value of such property exceeds the consideration by 10% as well as such difference exceeds Rs. 50,000, then the entire differential amount would be taxable under the head Income from other sources.
Cash/Monetary Gifts
For the recipient of a monetary gift, it is necessary to understand the governing provisions of Section 56(2)(x) of the IT Act. Such monetary gifts would be exempt from tax where the amount of gift is up to Rs. 50,000. In case of a monetary gift exceeding Rs. 50,000, the entire amount of such gift would be subjected to taxation in the hands of the person receiving such gift.
All the aforementioned gifts would be taxable in the hands of the donee as “Income from Other Sources”.
Applicability of Stamp Duty
Further, the rate of stamp duty applicable on the gift deed would differ from state to state as every state has its own laws for the imposition of stamp duty. For instance, Maharashtra imposes stamp duty factoring into considerations such as whether the gift deed is for movable or immovable property, the Donee is a family relative or not (the definition of relative under Income Tax and Stamp Duty may differ), the market value of the property, etc. Generally, the gift deed for movable property would attract a fixed stamp duty whereas in case of immovable property certain specified percentage of the market value of the property.
This Q&A series is published every week on Thursday.
Disclaimer: The views and facts shared above are those of the expert. They do not reflect the views of financialexpress.com