Gift Tax in India

India does not impose a separate gift tax under the former Gift-tax Act. However, specified gifts of money or property received without consideration, or for inadequate consideration, can be taxable in the hands of the recipient as "Income from other sources" under Section 56(2)(x) of the Income-tax Act.

Section 56(2)(x): current law on gifts

Section 56(2)(x) replaced the older gift provisions under Sections 56(2)(vi), 56(2)(vii) and 56(2)(viia). The current provision broadly covers these receipts:

See the official text of Section 56 and the Income Tax Department's guide to deemed income and gifts.

What is "property" for Section 56(2)(x)?

The provision does not cover every movable item. The statutory definition includes immovable property being land or building or both, and specified movable capital assets such as shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures, any work of art and bullion. The definition also includes a virtual digital asset.

Fair market value of specified movable property is determined under prescribed rules, including Rule 11UA where applicable. The Income Tax Department's official fair market value guidance explains the valuation framework.

Gifts generally exempt under Section 56(2)(x)

Subject to the exact statutory conditions, money or property is not taxed under Section 56(2)(x) when received in circumstances including:

• from a "relative" as defined for this provision;
• by an individual on the occasion of his or her marriage;
• under a will or by way of inheritance;
• in contemplation of death of the payer or donor;
• from a qualifying local authority;
• from specified funds, foundations, universities, educational institutions, hospitals, medical institutions, trusts or institutions covered by the relevant provisions of Section 10(23C);
• from or by qualifying trusts or institutions registered under Section 12A, Section 12AA or Section 12AB, subject to statutory limitations;
• through specified transactions not regarded as transfers under Section 47;
• from an individual to a trust created or established solely for the benefit of the individual's relatives; and
• in other classes of receipts specifically exempted or prescribed under law, subject to their conditions.

Special restrictions apply to some receipts involving specified persons connected with charitable or religious institutions, so the current provisos to Section 56(2)(x) should be checked before claiming an exemption.

Who is a "relative"?

For an individual, "relative" includes the spouse; brother or sister of the individual; brother or sister of the spouse; brother or sister of either parent; any lineal ascendant or descendant of the individual; any lineal ascendant or descendant of the spouse; and the spouse of persons falling within the specified sibling, parental-sibling and lineal categories. For a Hindu undivided family (HUF), any member of the HUF is treated as a relative.

The legal definition controls the exemption. See the Income Tax Department's official explanation of specified relatives.

Marriage gifts

A gift received by an individual on the occasion of that individual's marriage falls within the statutory exception to Section 56(2)(x). The exception is tied to the marriage of the recipient; a gift connected with another person's marriage does not automatically qualify.

Gifts received by will or inheritance

Money or property received under a will or by way of inheritance is excluded from Section 56(2)(x). Separate tax consequences may arise later if the inherited asset produces income or is transferred.

Immovable property for inadequate consideration

Where immovable property is acquired for less than its stamp duty value, Section 56(2)(x) can apply if the difference exceeds the higher of Rs. 50,000 and 10% of the consideration. The law also contains rules for cases where the agreement date and registration date differ, including conditions under which the agreement-date stamp duty value may be used.

Minor child's income and clubbing

Section 64(1A) generally requires income arising to a minor child to be included in the income of the parent specified by that provision. Exceptions include income arising from manual work of the minor or from an activity involving the minor's skill, talent, specialised knowledge or experience. The provision also contains an exception concerning a minor child with a disability of the nature specified in Section 80U.

Where a minor child's income is clubbed under Section 64(1A), Section 10(32) provides an exemption of up to Rs. 1,500 for each minor child whose income is so included. See the official text of Section 64 and Section 10(32).

Gifts from an employer

A gift or benefit received from an employer may be governed by the salary and perquisite provisions rather than being treated simply as a personal gift under Section 56(2)(x). The nature of the benefit and the applicable valuation and exemption rules should be checked separately.

Section 80C and taxable gifts

No special Section 80C deduction arises merely because a receipt is taxable under Section 56(2)(x). A deduction under Section 80C is available only for eligible payments or investments and subject to that section's conditions and limits. The older statement that a Section 80C deduction is automatically allowable against gifts treated as income should not be relied upon.

Examples

Official references

• Income Tax Department - Section 56
• Income Tax Department - Deemed Income and Gifts
• Income Tax Department - Section 64
• Income Tax Department - Section 10

This article is a general informational guide and does not substitute for professional advice based on the facts of a particular transaction.