Are Gifts Between Spouses Taxable in India?

In India, gifts exchanged between spouses are not taxable under the Income Tax Act. The law provides an exemption for gifts between spouses, meaning that gifts given between a husband and wife are generally exempt from gift tax, regardless of their value. This provision ensures that transfers within a marriage do not result in a tax burden for either party.

Tax Treatment of Gifts Between Spouses:

Exemption from Gift Tax:

• No Tax on Gifts Between Spouses: Under the Income Tax Act, gifts between spouses are exempt from gift tax. This exemption applies to all types of gifts, whether they are cash gifts, property, jewelry, or any other asset. There is no upper limit on the amount of gift that can be exchanged between a husband and wife without incurring gift tax.

No Reporting Requirement:

• Gifts exchanged between spouses do not need to be reported in the recipient's income tax return. Since these gifts are exempt from tax, they do not form part of the recipient’s taxable income, and there is no obligation to declare them under Income from Other Sources.

Impact on Income Tax:

• Gifts Are Not Part of Taxable Income: When one spouse gifts an item or money to the other, it does not get added to the recipient’s taxable income. This means that the recipient does not need to pay income tax on the value of the gift.
• No Capital Gains Tax on Gifts Between Spouses: If a property is gifted between spouses, there is no capital gains tax on the transfer at the time of gifting. However, if the recipient later sells the gifted property, they may be liable to pay capital gains tax on the sale proceeds based on the holding period and the nature of the property.

Gift Deed:

While gifts between spouses are not subject to tax, it is advisable to execute a gift deed when transferring significant assets, such as property or high-value gifts. A gift deed serves as legal proof of the gift and can prevent potential disputes or confusion regarding the ownership of the asset in the future.

Legal Actions and Protections:

• No Tax Liability: Since there is no gift tax or capital gains tax at the time of the gift transfer, there is no tax liability for either spouse under the Income Tax Act.
• Documentation: Although not mandatory for tax purposes, it is good practice to maintain proper records of any large-value gifts exchanged between spouses, such as through a gift deed or other documentation, to avoid future complications.

Example:

Example 1: A husband gifts ₹10,00,000 in cash to his wife. Since gifts between spouses are exempt from gift tax, the wife will not need to pay any gift tax on the ₹10,00,000, nor does she need to report it on her income tax return.

Example 2: A wife gifts her husband a piece of property worth ₹50,00,000. Since gifts between spouses are exempt from tax, there is no gift tax liability on this transaction. The husband will not need to include the gift in his income tax return or pay any tax on it at the time of receiving it.

Conclusion:

In India, gifts between spouses are not taxable under the Income Tax Act. Both cash and non-cash gifts exchanged between a husband and wife are exempt from gift tax, and there is no need to report them in the income tax return. However, it is still advisable to maintain documentation, such as a gift deed, for high-value gifts to ensure proper legal clarity.