In India, receiving gifts in the form of cash or property is common, especially during festivals, weddings, or family events. However, the Income Tax Act, 1961, governs the taxation of such gifts under Section 56(2)(x), and it’s crucial to understand how to report them in your Income Tax Return (ITR) to stay compliant. This quick guide explains the rules and steps for reporting gifts, ensuring transparency and avoiding tax scrutiny.
Are Gifts Taxable?
Gifts, whether cash or property, may or may not be taxable depending on the donor, the occasion, and the value. Here’s a breakdown:
Exempt Gifts: Gifts from specified relatives (e.g., parents, siblings, spouse, children, grandparents, or in-laws) are fully exempt from tax, regardless of the amount. Gifts received on your marriage, through a will, or from registered charitable institutions are also tax-free.
Taxable Gifts: If you receive cash or property from non-relatives and the aggregate value exceeds ₹50,000 in a financial year, the entire amount is taxable as "Income from Other Sources." For immovable property, the stamp duty value is considered, and for movable property (like shares or jewellery), the fair market value applies.
Relative as per the Income Tax Act
Under the Income Tax Act, 1961 in India, the definition of a "relative" for the purpose of tax exemptions on gifts is provided under Section 56(2)(x). Gifts received from specified relatives are exempt from tax, regardless of the amount. The term "relative" includes the following individuals:
- Spouse of the individual (husband or wife).
- Brother or sister of the individual.
- Brother or sister of the spouse of the individual (i.e., brother-in-law or sister-in-law).
- Brother or sister of either parent of the individual (i.e., maternal or paternal uncle/aunt).
- Any lineal ascendant or descendant of the individual (e.g., parents, grandparents, children, grandchildren).
- Any lineal ascendant or descendant of the spouse of the individual (e.g., parents-in-law, grandparents-in-law).
- Spouse of any person referred to in points 2 to 6 (e.g., spouse of a brother, sister, uncle, aunt, or child).
How to Report Gifts in ITR?
Even exempt gifts should be disclosed in your ITR for transparency, as high-value transactions may be flagged by the Income Tax Department’s AI-based tools. Here’s how to report them:
Exempt Gifts
Where to Report: Disclose exempt gifts under the "Schedule EI" (Exempt Income) section in ITR forms like ITR-2, ITR-3, or ITR-4. ITR-1 (Sahaj) doesn’t have a specific section for exempt income, so use ITR-2 or higher if needed.
Details to Provide: Mention the nature of the gift (cash or property), the donor’s relationship, and the amount or value. For example, if you received ₹5 lakh from your father, note it as “Gift from relative (father) – ₹5,00,000.”
Documentation: Maintain a gift deed (preferably on stamp paper) and proof of the donor’s income source (e.g., bank statements) to substantiate the transaction if queried.
Taxable Gifts
Where to Report: Report taxable gifts under "Income from Other Sources" in Schedule OS of ITR-2, ITR-3, or ITR-4. The taxable amount is added to your total income and taxed at your applicable slab rate.
Example: If you receive ₹75,000 in cash from a friend, the entire amount is taxable (not just the excess over ₹50,000). Report ₹75,000 in Schedule OS.
Property Valuation: For gifted immovable property, use the stamp duty value. If it’s purchased below market value, the difference exceeding ₹50,000 is taxable. For movable property, use the fair market value.
Key Tips for Compliance
- Gift Deed: Execute a gift deed for high-value gifts, especially property, to establish the transaction’s legitimacy. It doesn’t need to be registered but should be on stamp paper for legal clarity.
- Section 269ST: Cash gifts exceeding ₹2 lakh from any person (even relatives) may attract penalties under Section 269ST, so prefer bank transfers for large amounts.
- Record-Keeping: Keep bank statements, gift deeds, or proof of relationship (e.g., birth or marriage certificates) to respond to potential Income Tax notices.
- Clubbing Provisions: Income from gifted assets (e.g., interest from a gifted fixed deposit) may be taxable in the donor’s hands, especially if gifted to a spouse or minor child.
FAQs
Is Gifted Property Taxable?
Any gifts received in excess of Rs 50,000 in a Financial Year shall be taxed under the head Other Sources.
How is a gifted property valued for tax purposes?
For immovable property, the stamp duty value is considered. If the property is purchased below market value, the difference exceeding ₹50,000 is taxable. For movable property (e.g., shares, jewellery), the fair market value is used. Report these values in Schedule OS if taxable.
Can I receive cash gifts above ₹2 lakh?
Under Section 269ST, receiving cash exceeding ₹2 lakh from any person (including relatives) in a single transaction or related transactions may attract penalties. To avoid issues, use bank transfers for large gifts and maintain proper documentation.
What if I sell a gifted property?
If you sell a gifted property, capital gains tax applies. The cost of acquisition is the donor’s purchase price (or the value as per Section 50C for immovable property). If held for more than 24 months, it qualifies as a long-term capital gain, taxed at 20% with indexation benefits.
Are there any clubbing provisions for gifts?
Yes, income generated from gifted assets (e.g., interest from a gifted fixed deposit or rent from a gifted property) may be clubbed with the donor’s income, especially if gifted to a spouse or minor child. This is governed by Section 64 of the Income Tax Act.
Can I claim deductions on gifted property or cash?
No, you cannot claim deductions on the gift amount itself. However, if the gifted asset generates income (e.g., rent from property), you may claim deductions on that income as per applicable tax rules (e.g., 30% standard deduction for rental income).
What documents should I keep for gifted transactions?
Maintain a gift deed, proof of the donor’s income source (e.g., bank statements), and evidence of the relationship (e.g., birth or marriage certificates). For property, keep valuation reports or stamp duty details to substantiate the gift’s value.
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