Tax Treatment of Gifts Received By an Individual or HUF

Tax Treatment of Gifts Received By an Individual or HUF. A very common and frequent question running in the mind of taxpayers is the taxability of gifts. In this part, you can gain knowledge about various provisions relating to taxability of gift received by an individual or a Hindu Undivided Family (HUF) i.e. sum of money or property received by an individual or a HUF without consideration or a case in which the property is acquired for inadequate consideration

Tax Treatment of Gifts Received By an Individual or HUF

Find Complete Details For Gifts Received By an Individual or HUF with Examples. Here we are providing everything you want to know about Gifts Received By an Individual or HUF like – Tax treatment of monetary gifts received by an individual or Hindu Undivided Family (HUF), Taxability of monetary gifts received from friends, Monetary gifts received from abroad etc. Recently we also provide

• Alternate Minimum Tax
• Minimum Alternate Tax

From the taxation point of view, gift can be classified as follows:

• Any sum of money received without consideration, it can be termed as “monetary gift”
• Specified movable properties received without consideration, it can be termed as „gift of movable property‟
• 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‟
• Immovable properties received without consideration, it can be termed as „gift of immovable property‟.
• 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‟.

Tax treatment of monetary gifts received by an individual or Hindu Undivided Family (HUF)

If the following conditions are satisfied then any sum of money received without consideration (i.e., monetary gift may be received in cash, cheque, draft, etc.) by an individual/ HUF will be charged to tax:

• Sum of money received without consideration.
• The aggregate value of such sum of money received during the year exceeds Rs. 50,000.

Cases in which sum of money received without consideration, i.e., monetary gift received by an individual or HUF is not charged to tax

In following cases, monetary gift received by an individual or HUF will not be charged to tax:-

1) Money 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.

• Money received on the occasion of the marriage of the individual.
• Money received under will/ by way of inheritance.
• Money received in contemplation of death of the payer or donor.
• Money received from a local authority [as defined in Explanation to section 10(20) of the Income-tax Act].
• Money received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C).
• Money received from a trust or institution registered under section 12AA.

Marriage of the individual is the only occasion when monetary gift received by him will not be charged to tax

Gift received on the occasion of marriage of the individual is not charged to tax. Apart from marriage there is no other occasion when monetary gift received by an individual is not charged to tax. Hence, monetary gift received on occasions like birthday, anniversary, etc. will be charged to tax

Taxability of monetary gifts received from friends

Gifts received from relatives are not charged to tax (Meaning of „relative‟ has been discussed earlier). Friend is not a „relative‟ as defined in the above list and hence, gift received from friends will be charged to tax (if other criteria of taxing gift are satisfied).

Monetary gifts received from abroad

If the aggregate value of monetary gift received during the year by an individual or HUF exceeds Rs. 50,000 and the gifts are not covered under the exceptions discussed in earlier part, then gifts whether received from India or abroad will be charged to tax.

Once the aggregate value of gifts received during the year exceeds Rs. 50,000 than all gifts are charged to tax

Sum of money received without consideration by an individual or HUF is chargeable to tax if the aggregate value of such sum received during the year exceeds Rs. 50,000.

The important point to be noted in this regard is the “aggregate value of such sum received during the year”. The taxability of the gift is determined on the basis of the aggregate value of gift received during the year and not on the basis of individual gift. Hence, if the aggregate value of gifts received during the year exceeds Rs. 50,000, then total value of all such gifts received during the year will be charged to tax (i.e. the total amount of gift and not the amount in excess of Rs. 50,000).

Example

Mr. Kumar received following gifts during the financial year 2014-15:

• Rs. 1,84,000 from his friend residing in Canada.
• Rs. 25,200 from his elder brother residing in Delhi
• Rs. 84,000 from his friend residing in Delhi (received on the occasion of birthday of Mr. Kumar).

What will be the tax treatment of above items in the hands of Mr. Kumar?

Answer

Sum of money received without consideration (i.e. gift) by an Individual or a HUF from any person other than relative (meaning of relative is already discussed earlier) and otherwise than on prescribed occasions (as discussed earlier) is charged to tax, if the aggregate amount of such gift received during the year exceeds Rs. 50,000. Considering these provisions, the tax treatment of gifts in the hands of Mr. Kumar will be as follows:

• Rs. 1,84,000 received from his friend will be fully taxed because friend is not covered in the definition of “relative”.
• Rs. 25,200 received from elder brother will not be charged to tax because elder brother is covered in the definition of “relative”.
• Birthday is not covered in the list of prescribed occasion on which gift is not charged to tax, hence Rs.84,000 received on the occasion of birthday will be fully taxed.

Tax treatment of immovable property received as gift by an individual or HUF

If the following conditions are satisfied than immovable property received without consideration by an individual or HUF will be charged to tax:

• 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.

When immovable property received by an individual or HUF without consideration (i.e. by way of gift) is not charged to tax

In following cases, gift of immovable property will not be charged to tax.

1) Property 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.

1. Property received on the occasion of the marriage of the individual.
2. Property received under will/ by way of inheritance.
3. Property received in contemplation of death of the donor.
4. Property received from a local authority [as defined in Explanation to section 10(20) of the Income-tax Act]
5. Property received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C).
6. Property received from a trust or institution registered under section 12AA.

Marriage of individual is the only occasion when gift received by him will not be charged to tax

Gift (i.e. immovable property received without consideration) received only on the occasion of marriage of the individual is not charged to tax. Apart from marriage there is no other occasion when gift received by an individual is not chargeable to tax. Hence, immovable property received on occasions like birthday, anniversary, etc., without any consideration will be charged to tax.

Taxability of immovable property received without consideration i.e., gift from friends

Gifts (i.e. immovable property received without consideration) received from relatives are not charged to tax (meaning of relative has been discussed earlier). Friend is not a relative as defined in the above list and hence, gift received from friends will be charged to tax (if other criteria of taxing gift are satisfied).

Tax treatment of gift of immovable property located abroad

If the conditions discussed in earlier part (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.

Example

An Individual received a gift of flat from his friend. The stamp duty value of the flat is Rs. 84,000. In this case whether the total value of gifted property will be charged to tax or only the value in excess of Rs. 50,000 will be charged to tax?

Answer

If the conditions discussed in earlier part (regarding the taxability of gift of immovable property) are satisfied, then the entire stamp duty value of immovable property received without consideration, i.e., received as gift will be charged to tax. Once the taxability is attracted, i.e., stamp duty value of property received as gift exceeds Rs. 50,000, than the entire stamp duty value of the property is chargeable to tax. Hence, in this case entire stamp duty value of property, i.e., Rs. 84,000 will be charged to tax

Taxability in a case where an immovable property is received for less than its stamp duty value

Apart from taxing immovable property received without consideration, i.e., received as gift, the Income-tax Act has also designed provisions for taxing immovable property received for less than its stamp duty value. If following conditions are satisfied, then immovable property received by an individual or HUF for less than its stamp duty value will be charged to tax:

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 but the consideration is less than the stamp duty value and the difference exceeds Rs. 50,000.

In above case the excess of stamp duty value over the purchase price of the property will be treated as income of the purchaser

When immovable property received by an individual or HUF for less than its stamp duty value is not charged to tax

1) In following cases, nothing will be charged to tax in respect of immovable property received for less than its stamp duty value :Property 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.

1. Property received on the occasion of the marriage of the individual.
2. Property received under will/ by way of inheritance.
3. Property received in contemplation of death of the donor.
4. Property received from a local authority [as defined in Explanation to section 10(20) of the Income-tax Act]
5. Property received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C).
6. Property received from a trust or institution registered under section 12AA.

Example

On 12-12-2014, Mr. Raja (a salaried employee) purchased a building from Mr. Kumar for Rs. 25,20,000. The value of the building adopted by the Stamp Valuation Authority for charging stamp duty was Rs. 26,00,000. Advice Mr. Raja regarding the tax treatment in this case

Answer

If a taxpayer purchases any immovable property (which is capital asset for him) for less than its stamp duty value and the difference between the stamp duty value and the actual purchase price exceeds Rs. 50,000, then excess of stamp duty value over the purchase price will be charged to tax in the hands of the purchaser. It will be charged to tax under the head “Income from other sources”. In the given case, property is a capital asset for Mr. Raja. The stamp duty value adopted by the Stamp Valuation Authority for charging stamp duty is Rs. 26,00,000 and the property is purchased for Rs. 25,20,000 i.e. for less than the stamp duty value, hence, the above discussed provision will apply and the difference of Rs. 80,000 (Rs. 26,00,000 less Rs. 25,20,000) will be treated as income of Mr. Raja.

Tax treatment of movable property received as gift by an individual or HUF

If the following conditions are satisfied then value of prescribed movable property (meaning discussed in later part) received by an individual or HUF will be charged to tax:

1. Prescribed movable property is received without consideration (i.e., received as gift).
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

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

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.

When prescribed movable property received without consideration, i.e., received as gift by an individual or HUF is not charged to tax

In following cases, nothing will be charged to tax in respect of prescribed movable property received without consideration:

1) Movable Property 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.

1. Movable Property received on the occasion of the marriage of the individual.
2. Movable Property received under will/ by way of inheritance.
3. Movable Property received in contemplation of death of the donor.
4. Movable Property received from a local authority [as defined in Explanation to section 10(20) of the Income-tax Act]
5. Movable Property received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C).
6. Movable Property received from a trust or institution registered under section 12AA.

Example

During the financial year 2014-15, Mr. Raja received following gifts from his friends/relatives:

• Shares received from his father, the fair market value (i.e. value as per stock exchange) of the shares on the date of gift was Rs. 2,84,000.
• Jewellery received from his friend, the fair market value of the jewellery is Rs. 84,000.
• Jewellery received from his friends and relatives on the occasion of his marriage, the fair market value of jewellery is Rs. 2,52,000.
• Advice Mr. Raja regarding the tax treatment of above gifts.

Answer

If the following conditions are satisfied then value of prescribed movable property (meaning has been discussed earlier) received by an individual or HUF will be charged to tax:

1. Prescribed movable property is received without consideration (i.e., received as gift).
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 discussed provisions are not applicable in case of prescribed movable property received from relatives and received on certain specified occasions.

Considering above provisions, the tax treatment of various items received by Mr. Raja will be as follows:

1. Nothing will be charged to tax in respect of shares received from his father, since father comes under the definition of the term “relative”
2. Friend is not covered in the definition of relative and hence, in respect of jewellery received from his friend, the fair market value, i.e., Rs. 84,000 will be charged to tax in the hands of Mr. Raja.
3. Marriage is covered in the list of specified occasions, and hence, nothing will be charged to tax in respect of jewellery received from his friends and relatives on the occasion of his marriage.

Taxability when prescribed movable property is received by an individual or HUF for less than its fair market value

If the following conditions are satisfied then prescribed movable property (meaning has been discussed earlier) received by an individual or HUF will be charged to tax:

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. In other words, the aggregate fair market value of all such properties is higher than the consideration paid and the difference is more than Rs. 50,000.

Considering the definition of prescribed movable property (as discussed earlier), 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.

When prescribed movable property received for less than its fair market value by an individual or HUF is not charged to tax

1) Movable Property 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.

• Movable Property received on the occasion of the marriage of the individual.
• Movable Property received under will/ by way of inheritance.
• Movable Property received in contemplation of death of the donor.
• Movable Property received from a local authority [as defined in Explanation to section 10(20) of the Income-tax Act]
• Movable Property received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C).
• Movable Property received from a trust or institution registered under section 12AA.