Smart things to know about tax treatment for gifts

1. A gift is a voluntary transfer of an asset’s ownership to an individual without full monetary consideration. The individual who makes the gift is called ‘donor’ and the recipient is ‘donee’. Tax may be payable by the donee on the gift.

2. A gift that is received from a relative is fully exempt from tax. The gift can be in the form of cash, cheque, movable or immovable property.

3. Under the Income Tax Act, a 'relative' is defined as spouse, brother or sister, either of the parents, and lineal ascendant or descendant of the individual or spouse. Anyone else is regarded as ‘non-relative’ for tax purposes.

4. All gifts of movable and immovable property and monetary gifts worth more than Rs 50,000 from non-relatives are taxed. The tax is applicable on the whole fair market value of the gift, not just on the amount in excess of Rs 50,000.

5. The gifts are taxed under the head ‘Income from other sources’. It will be added to the total income of the donee and taxed at the applicable marginal rate of tax.

6. The exception to tax on gifts worth more than Rs 50,000 from non-relatives are those received on marriage, under a will or as inheritance, and gifts received in case of the imminent death of the donor.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL))