What is meant by gift received by an individual or a Hindu Undivided Family (HUF) under income Tax Act?

Gift means any sum of money or property received by an individual or a HUF without consideration or the property is acquired for inadequate consideration.

It can be classified as follows:

• 1. Any sum of money received without consideration, it can be termed as ‘monetary gift’.
• 2. Specified movable properties received without consideration, it can be termed as ‘gift of movable property’.
• 3. Specified movable properties received at a reduced price (i.e. for inadequate consideration), it can be termed as ‘movable property received for less than its fair market value’.
• 4. Immovable properties received without consideration, it can be termed as ‘gift of immovable property’.
• 5. Immovable properties acquired at a reduced price (i.e. for inadequate consideration), it can be termed as ‘immovable property received for less than its stamp duty value’.

What is the taxability of monetary gifts received by an individual or Hindu Undivided Family (HUF)?

Monetary gifts received by an individual or Hindu Undivided Family (HUF) are taxable if the following conditions are satisfied.

• Monetary gifts (i.e., monetary gift may be received in cash, cheque, draft, etc.) received without consideration.
• The aggregate value of money received during the year exceeds Rs. 50,000. (The total value of all such gifts received during the year will be charged to tax and not the amount in excess of Rs. 50,000).

The above provisions are not applicable in case monetary gifts are received from relatives or on certain specified occasions.

Illustration:

During the financial year 2020-21, Mr. X received following gifts from his friends:

• Rs. 25,000 on 1-5-2020
• Rs. 28,000 on 31-12-2020

What will be the tax treatment of above gifts?

Answer:

Gift received from friends is not exempt and is taxable, if the aggregate amount received exceeds Rs. 50,000.

The aggregate amount of gift received by Mr. X during the year amounts to Rs. 53,000 (Rs. 25,000 + Rs. 28,000) which exceeds Rs. 50,000, hence, total amount of Rs. 53,000 will be charged to tax in the hands of Mr. X.

Whether gifts made by residents to a non-resident person are subjected to tax in India? 

Clause (viii) under Section 9 of the Income-tax Act has been inserted, effective 05-07-2019 to provide that any income arising out of India on account of money paid without consideration by a person resident in India to a non-resident or a foreign company shall be deemed to accrue or arise in India, hence would be taxable.

What is the taxability of immovable property received as gift by an individual or HUF? 

Immovable property received by an individual or HUF will be charged to tax, if the following conditions are satisfied:

• Immovable property, being land or building or both, is received by an individual/HUF.
• The immovable property is a ‘capital asset’ within the meaning of section 2(14) for such an individual or HUF.
• The stamp duty value of such immovable property received without consideration exceeds Rs. 50,000.   

The above provisions are not applicable in case immovable property is received from relatives or on certain specified occasions.

What is the taxability of immovable property received for less than its stamp duty value? 

When an immovable property is received by an individual or HUF for less than its stamp duty value, the excess of stamp duty value over the purchase price of the property will be charged to tax i.e. the difference between stamp duty value and the consideration paid will be treated as income of the purchaser, if following conditions are satisfied:

1) Any immovable property is acquired by an individual or a HUF.

2) The immovable property is a ‘capital asset’ within the meaning of section 2(14) of the Act for such individual or HUF.

3) Such property is acquired for a consideration less than its stamp duty value and the difference exceeds higher of Rs. 50,000 and 10% of the consideration.

The above provisions are not applicable in case of immovable property received from relatives or on certain specified occasions.

What is meant by ‘capital assets’ within the meaning of section 2(14) of the Income Tax Act? 

Capital Asset is defined to include:

1) Any kind of property held by an assessee, whether or not connected with business or profession of the assessee.

2) Any securities held by a FII which has invested in such securities in accordance with the regulations made under the SEBI Act, 1992.

What is the tax treatment of gift of immovable property located abroad? 

If the conditions discussed above (regarding the taxability of gift of immovable property) are satisfied, then gift of immovable property will be charged to tax whether the property is located in India or abroad.

What is the taxability of movable property received as gift by an individual or HUF? 

Prescribed movable property received by an individual or HUF will be charged to tax, if the following conditions are satisfied:

1) Prescribed movable property is received without consideration.

2) The aggregate fair market value of such property received by the taxpayer during the year exceeds Rs. 50,000.

In above case, the fair market value of the prescribed movable property will be treated as income of the receiver.

The above provisions are not applicable in case of movable property received from relatives or on certain specified occasions.

What is the taxability of movable property received by an individual or HUF for less than its fair market value?

When prescribed movable property is received by an individual or HUF for less than its fair market value, the excess of fair market value over the purchase price of the property will be charged to tax i.e. the difference between fair market value and the consideration paid will be treated as income of the purchaser, if following conditions are satisfied:

1) Prescribed movable property is acquired by an individual or HUF.

2) The aggregate fair market value of such properties acquired by the taxpayer during the year exceeds the consideration paid for these properties by Rs. 50,000.

What is meant by prescribed movable property? 

Prescribed movable property means shares/securities, jewelry, archaeological collections, drawings, paintings, sculptures or any work of art and bullion, being capital asset of the taxpayer.

Illustration: 

Considering the above definition, nothing will be charged to tax in respect of gift of any item being a movable property other than covered in the above definition, e.g., Nothing will be charged to tax in respect of a television set received as gift, because a television set is not covered in the definition of prescribed movable property.

However, in following cases, any sum of money or property received by an individual or HUF will not be charged to tax:-

1) Received from relatives. Relative for this purpose means:

i In case of an Individual

a.Spouse of the individual;

b.Brother or sister of the individual;

c.Brother or sister of the spouse of the individual;

d.Brother or sister of either of the parents of the individual;

e.Any lineal ascendant or descendent of the individual;

f. Any lineal ascendant or descendent of the spouse of the individual;

g.Spouse of the persons referred to in (b) to (f).

ii In case of HUF, any member thereof.  

2) Received on the occasion of the marriage of the individual.

3) Received under will/ by way of inheritance.

4) Received in contemplation of death of the payer or donor.

5) Received from a local authority [as defined in Explanation to section 10(20) of the Income-tax Act].

6) Received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C).

7) Received from a trust or institution registered under section 12AA.

8) Share received as a consequences of demerger or amalgamation of a company under clause (vid) or clause (vii) of section 47, respectively.

9) Share received as a consequences of business reorganization of a co-operative bank under section 47(vicb).

10) Received from an individual by a trust created or established solely for the benefit of relative of the individual.