Gifting is a common way to express affection, gratitude or generosity — be it during festivals, weddings or personal milestones. However, what many taxpayers overlook is that gifts can sometimes attract tax implications under the Income Tax Act, 1961. Understanding how gifts are taxed and how to structure them correctly can help you avoid unwanted liabilities.
Under Section 56(2)(x) of the Income Tax Act, any sum of money, movable property or immovable property received without consideration (or for inadequate consideration) is treated as a “gift.” The recipient of the gift (i.e., the person receiving it) is liable to pay tax on its value — unless the gift qualifies for an exemption.
If the aggregate value of gifts (in the form of money, movable property, or immovable property) received by an individual during a financial year exceeds ₹50,000, the entire amount becomes taxable under “Income from Other Sources.”
Example:
If you receive ₹40,000 from a friend in June and ₹20,000 from another friend in December, the total of ₹60,000 exceeds ₹50,000. Therefore, the entire ₹60,000 will be taxable.
Fortunately, not all gifts are taxable. The law provides several specific exemptions, mainly for gifts received from close relatives or on special occasions.
a) Gifts from Relatives
Gifts from certain relatives are fully exempt, irrespective of the amount.
As per the Act, “relatives” include:
Note: Gifts from cousins, friends or distant relatives do not qualify for exemption unless covered in the list above.
b) Gifts on Specific Occasions
Gifts received:
These are all exempt from tax, regardless of value.
The Income Tax Act distinguishes between monetary gifts and property gifts:
Type of Gift | When Taxable | Basis of Valuation |
Money (Cash/Cheque/Transfer) | If the total value exceeds ₹50,000 | Aggregate amount |
Immovable Property (e.g., land, house) | If received without consideration and stamp duty value > ₹50,000 | Stamp duty value |
Immovable Property (for inadequate consideration) | If the difference between stamp duty value and consideration > ₹50,000 | Difference amount |
Movable Property (e.g., jewelry, shares, paintings) | If received without consideration and FMV > ₹50,000 | Fair market value (FMV) |
If an individual transfers money or assets to a spouse or minor child as a gift, the income generated from those assets (like interest, rent, or dividends) may be clubbed with the donor’s income under Sections 60–64 of the Income Tax Act.
This rule prevents taxpayers from shifting income to lower-taxed family members to save tax.
While gifting is a noble gesture, it’s essential to understand that the Income Tax Department treats certain gifts as income. By knowing the rules under Section 56(2)(x) and structuring your transactions wisely, you can avoid unwanted tax liabilities and ensure compliance.
Always consult a tax professional before executing large or complex gift transactions. A little planning can go a long way in keeping your gifts truly tax-free.