Here Is A Quick Guide On How Can You Save Tax On Gifts

India is a land of festivals and celebrations. As a nation, we love to celebrate every occasion that comes to our hand. And what is a celebration without the exchanging of gifts? While the term ‘gift’ can denote anything from a bouquet to a four-wheeler, we are talking about the second type here- the big gifts. To save taxes on giving and receiving gifts, first, we need to know the tax rules of India thoroughly to save ourselves from any unintentional tax evasion resulting from ignorance.

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To help you better, here we have an Income Tax Guide that will help you understand how gifts are taxed in India.

Under the income tax rules of India, gifts in the forms of cash or check, immovable properties like land or house/ apartment, movable properties like a car, jewellery, securities, paintings or other artworks, bonds and securities, fixed deposits, all are taxable. The rules for taxation on gifts have been modified many times in the history of independent India. The Gift Tax Act was introduced in 1958. Under this act, all gifts in forms of cash, movable or immovable properties were taxable when their value was above a certain limit. Then in 1998, the Gift Tax Act was altogether abolished, and all gifts were made tax-free. Again, in 2004, taxation on gifts was reintroduced. Finally, the gift tax rules that we are following today are the results of the amendments made again in 2017. Let’s take a look into the income tax guide for gifts in India.

Save Tax on Gifts

According to new income tax rules and amendments made in 2017, all gifts amounting to more than Rs. Fifty thousand per year are taxable while gifts are amounting to less than Rs. Fifty thousand per year are tax-free. Of course, these rules have some relaxations and exceptions. It is possible to save taxes on gifts, but you have to know the basic rules of gift taxation in India. The main points to remember about gift taxes in India are given below.

  • If gift amount (in any forms of assets or money) is over Rs. 50000 a year, the entire amount will be taxable, applicable to the receiver, under ‘Income from other sources’.
  • In the case of movable properties, if a movable property is given as a gift without consideration that amounts to more than Rs. 50000, then the total value of the gift is taxable. If a movable property is given as a gift with consideration, then the final amount, resulting from the subtraction of consideration from the total value, is taxable.
  • In case of immovable properties, gifts without consideration having a stamp value amounting to more than Rs. 50000, the total stamp value is taxable. In the case of gifts with consideration, if the stamp duty value minus the consideration value amounts to more than Rs. 50000, then only that amount(after subtraction of consideration) is taxable.

However, in some specific cases, gifts are completely exempted from tax liabilities. These specific cases include:

  • Gifts received from relatives: Gifts amounting to any value is tax exempted if it is received from a relative. However, the term ‘relative’ is specific and limited to the following relations:
  • Spouse
  • Parents, Grandparents or Great Grandparents of self or spouse
  • Brothers and sisters of self or spouse
  • Parent’s brothers and sisters of self or spouse
  • Linear descendants of self or spouse
  • Spouse of any relatives mentioned here

Gifts received from any other relatives apart from those mentioned here will be taxable at the hand of the recipient.

  • Any gifts received in forms of inheritance, by legal heirs or nominees, or received from a will of a deceased, are tax-free.
  • Gifts received from employers by the dependents of a deceased employee are tax-free. These gifts can be in forms of bonus, gratuity or money gifted in compassionate grounds.
  • Money or other forms of gifts received in forms of rewards or recognition of some notable deed or academic excellence, or recognition of any particular skill or good deed are tax-free.
  • Gifts received in times of marriage from any distant relatives or friends are tax-free.

Again, some of these rules also have some exceptions. For example, gifts received from relatives listed here are tax-free, but the incomes earned from those gifts are taxable. For example, if your wife gifts you a fixed deposit, it will be tax-free, but the interest earned from the fixed deposit will be taxable under your name. Similarly, if your parents have gifted you an apartment, it will be tax-free when received by you, but rents earned from that apartment will be taxable.

If you want a thorough income tax guide when it comes to gifts, you should also keep in mind the following points:

  • Gifts in forms of money or bond/ other properties given to retired or unemployed parents are tax-free for them, and any earnings made from those gifts are also tax-free in their hands (until it crosses the basic income tax exemption limits per annum). So to save taxes, you can gift your parents (or other close relatives listed here) who are unemployed, and any income generated from those will be tax-free. That way you can save taxes for yourself.
  • Such gifts, if given to spouse or children, however, will attract tax liabilities to you if income is generated from them. In such cases, those incomes will get clubbed under your name and not under the non-earning children or spouse. For example, if you gift a house to your non-earning wife and earn rents from that house, it will come under your name and will be a tax liability for you since she does not have any incomes. In such cases, the best option will be to declare it as her separate income. In that case, unless it crosses the basic tax exemption limit, it will be tax-free as her separate income.
  • Gifts given to dependent relatives (listed here) who have no income of their own or falls under the low-income/tax-exempt category can be a good way to save taxes. Any investments/ bonds/ securities or cash gifted to them and extra income earned from these sources will not be clubbed with your income.

If tax saving is your only goal, however, then there are better ways available too. While gifting to relatives can be a smart way to save some taxes while earning some extra incomes, it can raise some other issues like succession issues, or owner issues. If you transfer your properties to your dependent relatives, they will be the legal owner of those properties and all the incomes generated from them. So, you will have no legal claims on such properties and incomes. So the trust factors come up here. If you are looking for an income tax guide to save taxes in any way, take a look into these options too.

Tax exemption rules:

Section 80C

under this section, you can claim up to Rs. 1.5 lakhs of the tax deduction by investing in the following government schemes:

  • Public Provident Fund (PPF)
  • Employees Provident Fund (EPF)
  • National Savings Certificate (NSF)
  • Senior Citizen Savings Scheme (SCSS)
  • Home Loan
  • Children’s Education Fees
  • Life Insurance Premium
  • Post Office deposits
  • Sukanya Samriddhi Scheme

Section 80D

Under this section, you can save taxes by investing in health insurance plans. For citizens under the age of 60, the maximum tax deduction is Rs. 25000, and for senior citizens, the limit is Rs. 30000.

Section 80DD

Under this section, tax exemption is granted for the medical cost of a dependent of the taxpayer.

  • If a dependent has 40% to 80% disability (subject to medical certification), the maximum tax deduction value will be Rs. 75000.
  • If a dependent has more than 80% disability, the maximum tax deduction value will be Rs. 125000.

Section 80DDB

Tax exemption can be claimed if the taxpayer has to pay for the treatment of critical illnesses like neurological diseases, Cancer, Aids, Renal Failure or Hematological Disorders. The maximum tax deduction amount is Rs. Forty thousand for citizens under 60 years, Rs. Sixty thousand for Senior Citizens (60-80 years) and Rs. Eighty thousand for Very Senior Citizens (above 80 years)

Section 80G

Any contribution made in the forms of check or bank draft to certain charities and distress relief funds are tax exempt. Donations made in cash are tax exempt up to Rs. 10000.

Gratuity Received by Employee

if a person is employed in an organisation for more than five years, he or she is entitled to receive a gratuity amount from the employee. This gratuity amount is tax-free up to Rs. 10 lakhs.

Certain reimbursements offered by an employer to their employees are tax exempt — medical expenses of up to Rs. Fifteen thousand per year are tax-free.

You needed an Income Tax Guide for tax savings, and we provided it. While gifts can be a good way to save taxes, you need to be familiar with the latest amendments of the Income Tax Act at all times to efficiently use the tax exemption options to your benefit.

Helpful Resources: Online Income Tax Calculator

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*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
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