However, many are not aware that gifts can attract tax. Under Section 56(2) of the Income Tax Act, gifts received during the year are taxed as per the slab rate under ‘income from other sources’.

Tax rules for gifting differs as per the nature of the gift and from whom it is received.

Which gifts are taxed?

You are required to pay taxes on gifts if the aggregate value of all gifts received during a year exceeds ₹50,000. If the aggregate amount is ₹50,000 or less, it is tax-free, however, if the total value exceeds the threshold even by a rupee, the entire amount is taxed. For instance, if you have received gifts worth ₹51,000, the entire sum will be taxed as per the applicable rate. In the case of cash, any sum received without consideration is treated as a gift. Without consideration means that the item is transferred purely as a gift or donation, with no receipt or promise of payment, service or good of value in exchange of the said item. For immovable property, when it is received without consideration, its stamp duty is chargeable to tax, whereas when the property is transferred with inadequate consideration, stamp duty value exceeding consideration is taxed.

In the case of jewellery and shares, the fair market value of such items is chargeable to tax.

Exemption in tax

You can get an exemption on tax on gifts depending on whom are you receiving it from. According to the I-T Act, gifts received from relatives are exempt from tax.

Donee’s spouse, brother or sister, brother or sister of the spouse, brother or sister of either of the parents or parents-in-law, any lineal ascendant or descendent, any lineal ascendant or descendent of the spouse, spouse of the persons referred above all qualify as relatives as per the I-T Act.

Gifts received from any of these people, irrespective of the nature and value of the gift and the occasion when the gifts are transferred, are exempt from tax.

Since friends are not considered relatives, gifts from them are taxed. However, gifts given on the occasion of wedding or transferred under a Will or inheritance are exempt from tax when received from any person and not just relatives.