Gifts are great, aren’t they? Especially during the festive season when everyone’s in a giving mood. But did you know some gifts could come with tax implications? Yes, not every gift is “free” from a tax perspective.
See, according to the Income Tax Act, any gift—whether it’s cash, a cheque, or even a property—might be taxable for the person receiving it.
Which gifts are taxable and who pays the tax?
A gift can be anything from money to a house, or even shares and jewelry received without consideration. If the total value of such gifts exceeds ₹50,000, they become taxable as “Income from Other Sources.”
And these gifts are taxable only in the hands of the receiver and not the sender.
What if you receive gifts from your spouse or parents?
Gifts from close relatives like your parents, siblings, or spouse are tax-exempt, no matter how much they’re worth. But if you receive a gift from a friend, it’s considered taxable. You can find a detailed list of who counts as a “relative” under the IT Act here.
Gifts received on special occasions like marriage, inheritance, or as a result of a will are not taxed.
Now, let’s look at some common scenarios involving different types of gifts and how they’re taxed.
Receiving shares and securities as gifts
Gifting shares and securities has become quite popular. When you receive such gifts, there are two scenarios:
1. When You Receive the Shares: If the fair market value (FMV) of the shares exceeds ₹50,000, the value is taxable as “Income from Other Sources.” However, this is exempt if the gift is from a relative.
2. When You Sell the Shares: You’ll pay capital gains tax when you eventually sell those shares. The holding period starts from when the original owner bought them. Shares held for more than 12 months are subject to long-term capital gains (LTCG) tax, while those sold within 12 months fall under short-term capital gains (STCG). Read more on how capital gains will be taxed, here.
Receiving gold as a gift
Gold is a classic gift, especially during festivals. If you receive gold from someone who isn’t a relative, and its value exceeds ₹50,000, you’ll need to pay tax at your applicable income tax rate.
Later when you sell the gold, the tax treatment depends on how long you’ve held onto it. Selling within 2 years means short-term gains (taxed as per your income slab), while selling after 2 years leads to long-term gains (taxed at 12.5%).
Taxation on immovable properties like land or a house received as gift is similar to that for gold.
How to report gifts in your ITR?
Gifts received are reported under “Income From Other Sources” in your ITR. However, if the gift is tax-exempt (like those from relatives), report it under “Exempt Income.”
If you want to know more, watch this video that explains taxation on gifts in India.
Have doubts? Ask away!