Answer By law4u team
In India, gifts received by individuals are subject to income tax if they exceed a certain threshold. However, gifts from close relatives are exempt from tax, and the tax-free limit depends on the nature of the gift and the relationship between the donor and the recipient. If the gift exceeds the specified limit, it may become taxable as income under Section 56 of the Income Tax Act of 1961. Understanding these thresholds and exemptions can help individuals avoid unexpected tax liabilities.
Maximum Tax-Free Gift Limit in India:
Gifts from Close Relatives:
Unlimited Tax-Free Gifts: Gifts received from close relatives are completely tax-free, regardless of the amount. This includes gifts from parents, siblings, spouses, children, in-laws, and other relatives specified under the law.
There is no limit on the amount of tax-free gifts received from close relatives. As long as the donor is a close relative, the recipient does not have to worry about taxes, irrespective of how large the gift is.
Example: If a person receives Rs. 10 lakh from their parent or sibling, the gift is tax-free in India.
Gifts from Non-Relatives:
Taxable Gifts: Gifts received from non-relatives (anyone other than the defined close relatives) are taxable if the value exceeds Rs. 50,000 in a year.
The amount exceeding Rs. 50,000 is treated as income in the hands of the recipient and is taxed according to the applicable income tax slab.
Example: If a person receives Rs. 60,000 as a gift from a friend, the Rs. 10,000 (exceeding Rs. 50,000) will be taxed as income in the hands of the recipient.
Taxability of Gifts Exceeding Rs. 50,000:
If the gift amount from a non-relative exceeds Rs. 50,000 in a year, the entire amount (not just the excess) is subject to income tax.
For example, if you receive Rs. 1 lakh as a gift from a non-relative, the entire Rs. 1 lakh will be considered income and taxed accordingly.
Special Considerations for Property Gifts:
If a gift is in the form of immovable property (like land or house), the fair market value of the property is considered for tax purposes.
If the property is gifted by a close relative, there is no tax liability. However, if gifted by a non-relative, the gift’s fair market value exceeding Rs. 50,000 is taxable.
Gifts for Special Occasions:
Gifts received on special occasions like marriages are subject to the same rule. For instance, a wedding gift from a close relative is tax-free, but a gift from a non-relative exceeding Rs. 50,000 would be taxable.
Key Points to Remember:
- Gifts from Close Relatives: Unlimited tax-free gifts, no upper limit.
- Gifts from Non-Relatives: If the value exceeds Rs. 50,000 in a year, it is taxable as income.
- Type of Gift Matters: Whether the gift is in the form of cash, property, or assets can impact how it is valued for tax purposes.
Example:
Gifting Money from Close Relatives:
An individual receives Rs. 2 lakh from their mother (a close relative). The entire Rs. 2 lakh is tax-free under Indian tax law.
Gifting Money from Non-Relatives:
An individual receives Rs. 1.2 lakh from a friend. Since the gift exceeds Rs. 50,000, Rs. 1.2 lakh will be taxed as income in the recipient’s hands.
Gifting Property:
An individual receives a flat worth Rs. 25 lakh from their uncle. Since the uncle is not a close relative (in terms of the Income Tax Act’s definition), the entire Rs. 25 lakh will be taxed as income.
Conclusion:
The maximum tax-free gift that can be received annually depends on the relationship between the donor and the recipient. For close relatives, there is no limit to the amount of tax-free gift one can receive. However, for gifts from non-relatives, any gift exceeding Rs. 50,000 in a year will be subject to income tax. Understanding these thresholds is important to ensure compliance with tax laws and avoid any unintended tax liabilities.
