Gift tax exemption rules: who can receive gifts that are tax-free?
This article tells you who all can receive gifts of cash, shares, property or any other assets from you without paying any gift tax.
This article tells you who all can receive gifts of cash, shares, property or any other assets from you without paying any gift tax.
This article is a part of our detailed article series on the concept of gifting assets and investing in the name of your relatives. Ensure you have read the other parts here:
This article discusses a common tax saving technique of investing in the name of parents to save tax. We also look at the pros and cons.
This article explains the concept of income clubbing. It shows how tax saving by investing in the name of family members may not save tax.
This article covers the mechanics for NRIs to regularly send or make one-time large gifts of money to parents in India.
A gift is when you give
to anyone.
The income tax department wants the receiver (called donee), and not the giver (donor), to pay taxes on receiving the gift called gift tax. This rule exists since without it, capital gains or interest income stops becoming taxable. For example, to pay for a foreign trip, you gift your travel agent 5 lakhs in mutual fund units and they gift that to the airline to buy tickets. The government misses out on taxes.
That being said, gifts to relatives is tax-free in the hands of the receiver as long as certain conditions are met.
Join the Arthgyaan WhatsApp community: You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.Source: https://incometaxindia.gov.in/Tutorials/18.%20Tax%20treatment%20of%20gifts.pdf
How to interpret the diagram:
A few worked out examples:
One exception is gifts received in the case of marriage are tax-free.
Just because there is no gift-tax on the gift to a relative, it does not mean that there is no tax on this amount after that. Any income via interest, dividend, rent or capital gains becomes taxable in the usual way in the hands of the owner of the assets who will be the receiver of the gift. If the receiver does not have income, clubbing with income of the donor might apply.
If there is capital gains, the original acquisition date and price will be applicable. For example, a father bought 100 units of a mutual fund for ā¹50/unit in 2015 and in 2023 gifts them to a major child who then sells it for ā¹100/unit. In this case, purchase price and date will be the same as the numbers in 2015.
A simple gift deed that captures the details of the gift, the donor and donee/receiver details and the fact that no consideration is paid, is a good practice. It provides proof that should be tax free in case of an income tax audit.
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This post titled Gift tax exemption rules: who can receive gifts that are tax-free? first appeared on 08 Nov 2023 at https://arthgyaan.com