How Will You Be Taxed When You Receive Gifts

Specific provisions govern how gifts are taxed. The taxation differs depending on whether the person you receive the gift from is a family member. 

Gifts Exchanged Between Family Members 

All gifts exchanged between the family members are fully tax-free. “Family members for section 56(2)(x) include the spouse, siblings, siblings of the spouse, siblings of either parent, any lineal ascendant or descendant of the individual or their spouse, and the spouses of all such persons,” says Rahul Singh, senior manager, Taxmann, tax and corporate advisor. 

Gifts Exchanged Between Extended Family And Non-Relatives 

“Gifts from extended family members and non-relatives exceeding Rs. 50,000 in a financial year are taxable in the recipient's hands as “Income from Other Sources,” unless given on occasions like marriage or inherited through a will,” says Suresh Surana, a Mumbai-based chartered accountant. 

“Section 56(2)(x) of the IT Act provides for tax implications for gifts (including monetary and certain specified non-monetary gifts) in the hands of donee (i.e. recipient of such gifts) and provides a specific exemption in case of receipt by Individuals from “close relatives”,” adds Surana. In accordance with the said section, any cash gift or property (movable or immovable) received by any individual without consideration or for inadequate consideration would be subjected to tax provided the following conditions are fulfilled:

In the case of financial gifts, the tax treatment is as follows. 

Documentation To Be Maintained 

“To ensure a gift is legally valid and tax-compliant, taxpayers may consider maintaining the following indicative list of documentation as follows,” says Surana. 

Gift Deed: A written gift deed specifying the details of the gift, donor, and recipient. For immovable property, the gift deed must be registered under the Registration Act, of 1908.

Proof Of Relationship: Evidence of the relationship between the donor and recipient, especially for claiming tax exemptions.

Valuation Report: For high-value assets, a valuation report ensures accurate assessment.

Payment Records: For monetary gifts, bank transfer records, or cheques provide proof of payment.

Income Tax Returns: Both parties should reflect the gift in their respective financial statements and should have adequate documentation for the same.

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