Tax treatments for Gifts - Detailed Analysis
Who don’t like gifts ? From children to elders , everybody like to count their blessings.But apparently , Income Tax Department wish to take their share from such gifts.This article will summarise all you need to know about taxation of gifts.
Are gifts taxable ?
Yes.The Income Tax Act explains various scenarios where the gift will be taxed.These scenarios are discussed in next part.
Which gifts are taxable?
The gifts are divided into 3 categories which are as follows
a. Gifts received by individual or HUF
1. Where gift is received by way of cash and is more than Rs.50000, whole amount received would be taxed.
2. Where movable property is received as gift without any consideration, then the implication would be as follows.
- There would be no taxability for the donor.
- Where the fair Market Value (FMV) is more than Rs.50000 , then such FMV will be considered as income from other sources.
- Fair Market Value will be considered as cost of acquisition.(at the time such asset is sold)
3. Where movable property is received as gift with inadequate consideration,then the tax position will be as below.
Consideration received – Fair Market value of such asset = income.
If such income is more than Rs.50000, then same treatment as above.
4. Where immovable property received from without consideration , then implication will be as follows.
- There will be no taxability for the donor.
- Where the stamp duty value is more than Rs.50000, then such stamp duty value will be considered as income from other sources.
- Cost of acquisition will be stamp duty value.(at the time of selling such asset)
5. Where immovable asset is received without consideration or with inadequate consideration , then tax position will be as below.
- Donor will face taxability under section 50C (if such immovable property is in form of land and building).In such a case , stamp duty value shall be sale consideration.
- Where the immovable property is not land or building , section 43CA will come into picture.In this case also, stamp duty value shall be considered as sale consideration for the donor.
- Receiver shall have tax positon as below
Consideration – stamp duty value = income from other sources.(in this case , stamp duty value shall be considered as cost of acquisition when the asset is further sold by the receiver.)
b. Gifts received by firm or closely held company, where such shares are of closely held company.
The tax position will be as follows.
1. Where the shares are received without consideration.
If Fair market value of such shares exceeds Rs.50000 , then
- No taxability for the donor (because this transaction is specifically not considered as transfer)
- Fair Market value shall be considered a income from other sources for the receiver.(In case receives sell these shares , cost of acquisition shall be fair market value)
2. Where these shares are received without adequate consideration.
If the difference between consideration and fair market value of the shares, is more than Rs.50000, then
- The donor will have taxability for income from capital gain.
- For the receiver , Consideration – fair market value = income from other sources.(at the time of further sale of such shares , fair market value shall be considered as cost of acquisition.)
Exception to above shares received as gift
Where the shares of closely held shares are received under any amalgamation , merger etc. under section
47 , then there will be no tax implications.
c. Where shares are issued to closely held company over and above the fair market value.
Receiver will be taxed for following difference.
Fair market value- sales consideration = difference (taxable)
However in this case , fair market value will be the value which shall be determined under prescribed rules and approved by assessing officer.
- If Venture Capital entity receives consideration from Venture Capital fund
- If consideration is received from prescribed class of companies.
Valuation of such assets received as gifts
- Movable property received as gift
Valued at stamp duty value on date of agreement.
- Movable property
a. Jewellery , bullion, art work , drawings etc.
Invoice value or Fair market value.
b. Quoted shares or securities
Market price (as on stock exchange) or price quoted on any recognized stock exchange (for over the counter sale).
c. Unquoted shares or securities
Price = (Net worth x paid value per share)/ total paid up capital
If net worth cant be ascertained , then rate at which such shares or securities can be sold.
Which gifts are not taxable?
- If any individual receives money or property from any relative.
Here relative would refer to spouse , siblings , parents , siblings of the spouse , siblings of the parents , any lineal ascendant or descendent of spouse or spouse of such relatives.
- Any gift received on occasion of marriage.
- If any individual inherits as per will of the deceased.
- If any one inherits .
- If any person received from local authority or fund or any institution or university or any educational institutions or any institution registered under section 12AA.
As summed up , most of the cases , place the tax liability on the receiver.So manage your tax by receiving gift where it can be termed as exempt.This will save you from unnecessary tax burden.