How to calculate tax on gift for financial year 2019-20

As per section 56, gift is taxable in the hands of recipients under the head income from other sources if certain conditions to the section are fulfilled. According to this section, gift received by an individual or a Hindu undivided family is taxable if the aggregate value of such gifts received during the previous year is Rs 50,000 or more.

It’s the receiver of the gift who is required to calculate and pay tax according to the provisions of the tax laws. In this article we will be discussing how to calculate tax on gift for the financial year 2019-20.

Tax on Cash Gift

If the aggregate value of cash gifts received without consideration is Rs 50,000 or more during a financial year, then the whole amount will be taxable in the hands of recipients in the same year in which its received.

For instance, if you have received a cash gift of Rs 1,50,000 in the previous year 2018-19, then the whole amount is taxable as income under the head other sources for the FY 2018-19. 

Tax is determined on the basis of the aggregate value of gift received during the financial year and not on the basis of individual gift. If the aggregate cash value for a financial year is less than Rs 50,000, then it would be exempted from tax. 

Tax on property gift

Instead of cash, if you have received immovable property as a gift without consideration, then it will be taxable in your hand under the head income from other sources when stamp duty value of the property is Rs 50,000 or more.

In case inadequate consideration is received and the difference between such consideration and stamp duty value exceeds higher of Rs 50,000 and 5% of the consideration for the financial year, then such difference amount will be taxable in the hands of recipient under the head income from other sources. 

The Stamp Duty Value is nothing but the value of the property adopted by stamp valuation authorities for determining the stamp duty. Stamp duty value on the date of agreement may be taken if-

  • Date of agreement for fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same,
  • Consideration or part thereof has been paid by way of an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account on or before the date of agreement for transfer of such immovable property.

If the stamp duty value of immovable property is disputed by the assessee on grounds mentioned in section 50C(2), the assessing officer can refer the valuation of such property to a valuation officer.

Let us understand the concept with the following example:

  • Consideration amount is Rs 2,00,000
  • Stamp duty valuation is Rs 5,00,000
  • Financial year in which its received – 2018-19

In this case, the value of the gift = Rs 5,00,000 – Rs 2,00,000 = Rs 3,00,000. In our case the value (Rs 3,00,000) exceeds the higher of below two figures;

  • 5% of the consideration = Rs 2,00,000*5% = Rs 10,000
  • Rs 50,000

Therefore taxable value of gift for the year 2018-19 is Rs 3,00,000.

Value of gift in case of certain specific movable property

In case of certain movable property, following valuation methods need to be applied;

  • In case of without consideration, if the aggregate fair market value exceeds Rs 50,000, the whole of the aggregate fair market value of such property.
  • In case of a consideration, which is less than the aggregate fair market value of the property by an amount exceeding Rs 50,000, the aggregate fair market value of such property as exceeds such consideration.

In following movable assets, you need to consider the fair market value and above rules;

  • Jewellery
  • Painting
  • Drawing
  • Share and securities
  • Archaeological collections
  • Sculptures
  • Bullion and 
  • Any artwork

If you have gifted a car to your friend, then it will not taxable as car is not notified as a property under section 56 of the income tax act, 1961.

Exception to the above rules

In following cases gift from a person will not be subject to tax;

  • if the aggregate value of gifts is up to Rs 50,000 for the financial year.
  • On the occasion of marriage from relatives and non-relatives. In this case we do not have any upper or lower limit.
  • Received from a relative during the financial year, it has no upper limit.
  • Received under a will or by way of inheritance or in contemplation of death of the payer.
  • Money received from a local authority as defined under 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 or by a trust or institution registered under section 12A or 12AA.
  • by any fund or trust or institution or university or other education institutions or any hospitals or other medical institutions referred to in section 10(23)(C)(iv) or (v) or (vi) or (via); or
  • by way of transaction not regarded as transfer under section 47(I) or (vi) or (via) or (viaa) or (vib) or (vic) or (vica) or (vicb) or (vid) or (vii); or
  • from an individual by a trust created or established solely for the benefit of relatives of the individual.

Please note, last six rules applies irrespective of its value.

Meaning of relatives

For this purpose following person will be considered as a relative of the individual who receive gift;

  • Spouse
  • Bother or sister of the individual
  • Brother or sister of the spouse
  • Bother or sister of either of the parents
  • Lineal ascendant or descendant
  • Lineal ascendant or descendant of the spouse and
  • Spouse of the aforementioned persons

In case of HUF, any member will be considered as relative.

Important points explained

The total value of the gift received by the recipient for the financial year is counted to know whether it exceeds Rs 50,000 or not. For example, if the assessee has received Rs 49,000 from Mr A (friend) and Rs 41,000 from Mr B (friend) during the year 2018-19, the limit of Rs 50,000 would be considered as breached for the year 2018-19. In this case the entire amount of value of gift i.e. Rs 90,000 would be taxable.

Gift received only on the occasion of the marriage of the recipient  is not charged to tax. In all other occasions such as birthday, anniversary value of gift from a non relative in excess of Rs 50,000 for a year will be taxable under the head income from other sources.

Be careful as clubbing provision may be applicable to you

It’s not that you should only look at the tax provisions of section 56 to know whether its taxable in your hand or not. You should also look at other provisions of the income tax act, 1961 for a better tax planning.

As discussed above, gift to a relative is not taxable in the hands of recipient irrespective of the amount. However, you have to remember the clubbing provisions of the income tax act, 1961. 

For example, if you have gifted Rs 20,00,000 to your wife during the financial year 2018-19, the same amount would not be taxable in the hands of your wife. However, if your wife creates a bank fixed deposit from the same gifted amount, then the interest amount earned from such deposits would be added to your income in the financial year in which its incurred.

For example, if Father-in-law or mother-in-law gifted property to daughter-in-law, then income from gifted property will get clubbed into the total income of father-in-law or mother-in-law as the case may be.

Gift by employer to employee

As per rule 3(7)(iv), the value of any gift provided by employer to the employee or any member of his household on ceremonial occasions or otherwise shall be considered as perquisite. In this case, a sum equal to the value of such gift will be considered as taxable value of perquisite.

If the employer has provided any voucher or token in lieu of such gift, then value of such voucher or token shall be taken as the value of perquisite.

However, if the value of such gift, voucher or token as the case may be is below Rs 5,000 in aggregate for the whole previous year, then the value of such perquisite shall be taken as nil.

Summary of important provisions

NatureTaxable amount
Any sum of money received without consideration, the aggregate value of which exceeds Rs 50,000.total aggregate value of such sum
Immovable property gifted without consideration in which stamp duty value of property is greater than Rs 50,000.Value of stamp duty
Immovable property gifted with inadequate consideration in which the difference between the consideration and stamp duty value exceeds Rs 50,000.Stamp duty value minus consideration
Specified property other than immovable property gifted without consideration of which aggregate fair market value is greater than Rs 50,000.Fair market value of such property
Specified property other than immovable property gifted with inadequate consideration in which difference between the consideration and aggregate fair market value exceeds Rs 50,000.Fair market value minus consideration

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.