Want to avoid tax on gifts? Know the 50k rule, eligible relatives

When is a gift taxable?

As per Section 56(2) (x) of the Income Tax Act, if cash or assets exceeding Rs.50,000 are received without consideration from a non-relative, the amount is taxable as income under the head ‘Income from other sources’. For immovable property, if the stamp duty value exceeds Rs.50,000 and no consideration is paid, the market value is considered taxable. Similarly, movable assets like shares or jewellery attract tax if their aggregate fair market value crosses Rs.50,000.

Who can give a tax-free gift?

Gifts are tax-exempt when received from a ‘relative’ as defined under the Act, which includes spouse, siblings, parents, grandparents, grandchildren, as well as any lineal ascendant or descendant. Gifts are also exempt when received on the occasion of marriage, or under a will or inheritance.

Property transfer

For immovable property transfers, executing a registered gift deed is recommended. Although no income tax may apply, stamp duty is generally payable on the basis of respective state laws. To reflect change of ownership, the mutation process must also be completed with local authorities.

Reporting gifts in ITR

Taxable gifts should be declared under ‘Income from other sources’ while filing the income tax return. Even though exempt gifts do not incur tax liability, they should be documented with supporting papers for future clarity or scrutiny.

Points to note

• Retain documents like gift deeds, PAN details and ID proofs of both parties.
• Gifts from multiple non-relatives must be aggregated to assess the Rs.50,000 limit.
• Stamp duty liability is determined by state-specific rules, irrespective of the tax exemption.