TAX TREATMENT OF GIFTS RECEIVED BY AN INDIVIDUAL OR HUF

A very common and frequent question running in the mind of taxpayers is the taxability of gifts. In this part, you can gain knowledge about various provisions relating to taxability of gift received by an individual or a Hindu Undivided Family (HUF) i.e. sum of money or property received by an individual or a HUF without consideration or a case in which the property is acquired for inadequate consideration.

From the taxation point of view, gift can be classified as follows-

• Any sum of money received without consideration, it can be termed as ‘monetary gift’.
• Specified movable properties received without consideration, it can be termed as ‘gift of movable property’.
• Specified movable properties received at a reduced price (i.e. for inadequate consideration), it can be termed as ‘movable property received for less than its fair market value’.
• Immovable properties received without consideration, it can be termed as ‘gift of immovable property’.
• Immovable properties acquired at a reduced price (i.e. for inadequate consideration), it can be termed as ‘immovable property received for less than its stamp duty value’. 

Tax Treatment of Monetary Gifts received 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.

Taxability of Gift in case Gifts by a resident person to a non-resident

Though the provisions relating to gift applies in case of every person, but it has been reported that gifts by a resident person to a non-resident are claimed to be non-taxable in India as the income does not accrue or arise in India. To ensure that such gifts made by residents to a non-resident person are subjected to tax in India, the Finance (No. 2) Act, 2019 has inserted a new clause (viii) under Section 9 of the Income-tax Act to provide that any income arising outside India, being money paid without consideration on or after 05-07-2019, by a person resident in India to a non-resident or a foreign company shall be deemed to accrue or arise in India.

Cases in which Monetary Gift received by an individual or HUF is not charged to tax 

In following cases, monetary gift received by an individual or HUF will not be charged to tax.

1. Money received from relatives.
2. Money received on the occasion of the marriage of the individual.
3. Money received under will/ by way of inheritance.
4. Money received in contemplation of death of the donor.
5. Money received from a local authority [as defined in Explanation to section 10(20) of the Income-tax Act].
6. 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) [w.e.f. AY 2023-24, this exemption is not available if property is received by a specified person referred to in section 13(3)].
7. Money received from a trust or institution registered under section 12AA or section 12AB [w.e.f. AY 2023-24, this exemption is not available if property is received by a specified person referred to in section13(3)].
8. Money received as a consequences of demerger or amalgamation of a company or business reorganization of a co-operative bank under section 47. 

Note: Marriage of individual is the only occasion when Gift received by him will not be charged to tax . Apart from marriage there is no other occasion when monetary gift received by an individual is not charged to tax. Hence, monetary gift received on occasions like birthday, anniversary, etc. will be charged to tax. 

Relative for this purpose means. 

      i. 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).

      ii. In case of HUF, any member thereof 

Taxability of Monetary Gifts received from friends 

Gifts received from relatives are not charged to tax. Friend is not a ‘relative’ as defined in the above list and hence, gift received from friends will be charged to tax (if other criteria of taxing gift are satisfied).

Monetary Gifts received from abroad 

If the aggregate value of monetary gift received during the year by an individual or HUF exceeds Rs. 50,000 and the gifts are not covered under the exceptions discussed in earlier part, then gifts whether received from India or abroad will be charged to tax. 

Taxability of Gifts where Aggregate Value of Gifts Received more than Rs 50000

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).

Let us take an Example:
Mr. Rakesh received following gifts during the financial year 2023-24:

•  Rs. 3,68,000 from his friend residing in America
•  Rs. 30,200 from his elder brother residing in Delhi.
•  Rs. 1,68,000 from his friend residing in Delhi (received on the occasion of birthday of Mr. Rakesh).
   What will be the tax treatment of above items in the hands of Mr. Rakesh?

Sum of money received without consideration (i.e. gift) by an Individual or a HUF from any person other than relative (meaning of relative is already discussed earlier) and otherwise than on prescribed occasions  is charged to tax, if the aggregate amount of such gift received during the year exceeds Rs. 50,000.

Considering these provisions, the tax treatment of gifts in the hands of Mr. Rakesh will be as follows.

• Rs. 3,68,000 received from his friend will be fully taxed because friend is not covered in the definition of ‘relative’.
• Rs.30,200 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. 1,68,000 received on the occasion of birthday will be fully taxed.

For more details click on below link 

Tax In case of Gift received as immovable property

Tax In case of Gift received as movable property