December 14, 2018

TAX TREATMENT OF GIFTS RECEIVED BY AN INDIVIDUAL OR HUF

TAX TREATMENT OF MONETARY, MOVABLE AND IMMOVABLE GIFTS RECEIVED BY AN INDIVIDUAL OR HUF      

A very common and frequent question running in the mind of taxpayers is the taxability of gifts. In this session one can gain the knowledge about various provisions relating to taxability of gifts received by an individual and a Hindu Undivided Family(HUF) i.e. sum of ,money received by an individual pr a HUF  without consideration or a case in which property is acquired for inadequate consideration.

From taxation point of view Gifts can be classified as follow:

♠ Any sum of money received without consideration, it can be termed as ‘monetary gift’.

♠ Specified movable properties received without consideration, it can be termed as ‘gift of movable property’.

♠ Specified movable properties received at a reduced price( i.e. inadequate consideration), it can be termed as “movable property received for less than its fair market value.”

♠ Immovable properties received without consideration, it can be termed as “gift of immovable property”.

♠ Immovable properties acquired at a lower price (i.e. for inadequate consideration), “it can be termed as immovable property received for less than its stamp duty value”.

Tax treatment of monetary gifts received by individual or Hindu Undivided Family(HUF)

If the following conditions are satisfied then any sum of money received without consideration (i.e., monetary gift may be received in cash, cheque, draft, etc.) by an individual/HUF will be charged to tax:

Sum of money received without any consideration.

The aggregate value of such sum of money received during the year exceeds Rs. 50,000.

Cases in which sum of money received without consideration, i.e monetary gift received by an individual or HUF is not charged to tax.

In following cases, monetary gifts received by an individual or HUF in not charged to tax:

Relatives for this purpose means:

  • In case of Individual

♦ Spouse of the Individual;

♦ Brother or sister of the Individual;

♦ Brother or sister of the spouse of the Individual;

♦ Brother or sister of either of parents of the Individual;

♦ Any lineal ascendant or descendent of the Individual;

♦ Any lineal ascendant or descendent of the spouse of the Individual;

♦ Spouse of the persons referred to in (b) to (f).

  • In case of HUF, any member thereof.

♦ Money received on the occasion on the marriage of the Individual

♦ Money received under will/ by way of inheritance

♦ Money received under contemplation of death of the payer or donor.

♦ Money received from a local authority [as defined in Explanation to section 10(20) of the Income-tax Act].

♦ Money received from  any fund, foundation, university, other educational institution, hospital, or other medical institution, any trust or institution referred to in section 10(23C).

♦ Money received from a trust or institution registered under section 12AA.

♦ Share received as consequences of demerger or amalgamation of a company under clause (vid) or clause (vii) of section 47, respectively.

♦ Share received as a consequences of business reorganization of a co-operative bank under section 47 (vicb).

Marriage of the Individual is the only occasion when monetary gift received by him will not be charged to tax

Gift received on the occasion of marriage of the individual is not charged to tax. Apart from marriage there is no other occasion when monetary gift received by an Individual is not charged to tax. Hence, monetary gift received on occasions like birthday, anniversary etc will be charged to tax.

Taxability of monetary gifts received from friends

Gifts from relatives are not charged to tax (Meaning of relative discuss earlier). Friend is not a ‘relative’ as define in the above list and hence, gifts received from friends will be charged to tax.(if other criteria of taxing gift are satisfy).

Monetary gifts received from abroad

If the aggregate value of monetary gift received during the year by an Individual or HUF exceeds Rs. 50,000 and the gifts are not covered under the exceptions, then gifts whether received from India or abroad will be charged to tax.

Once the aggregate value of gifts received during the year exceeds Rs. 50,000 than all gifts are charged to tax.

Sum of money received without consideration by an Individual or HUF is chargeable to tax if the aggregate value of such sum received during the year exceeds Rs. 50,000. The important point to be noted in this regard is the “aggregate value of such sum received during the year”. The taxability of the gift is determined on the basis of the aggregate value of gift received during the year and on the basis of individual gift. Hence, if the aggregate value of gifts during the year exceeds Rs. 50,000 then total value of all such gifts received during the year will be chargeable tot tax (i.e. the total amount of gift and not the amount in excess of Rs. 50,000).

Illustration :-

Tax treatment of immovable property received as gift by an Individual or HUF

If the following conditions are satisfied than immovable property received without consideration by an individual or HUF will be charged to tax:

  1. The immovable property is a capital asset within the meaning of section 2(14) for such an individual or HUF.
  2. Immovable property, being land or building or both, is received by an Individual/HUF.
  3. The stamp duty value of such immovable property received without consideration exceeds Rs. 50,000.

 When immovable property received by an individual or HUF without consideration (i.e. by way of gift) is not charged to tax.

 Property received from relatives

  •  In case of individual

♦ Spouse of the Individual;

♦ Brother or sister of the Individual;

♦ Brother or sister of the spouse of the Individual;

♦ Brother or sister of either of parents of the Individual;

♦ Any lineal ascendant or descendent of the Individual;

♦ Any lineal ascendant or descendent of the spouse of the Individual;

♦ Spouse of the persons referred to in (b) to (f).

  •  In case of HUF, any member thereof.

♦ Property received on the occasion on the marriage of the Individual

♦ Property received under will/ by way of inheritance

♦ Property received under contemplation of death of the payer or donor.

♦ Property received from a local authority [as defined in Explanation to section 10(20) of the Income-tax Act].

♦ Property received from  any fund, foundation, university, other educational institution, hospital, or other medical institution, any trust or institution referred to in section 10(23C).

♦ Property received from a trust or institution registered under section 12AA.

Marriage of individual is the only occasion when gift received by him will not be charged to tax

Gift (i.e. immovable property received without consideration) received only on the occasion of marriage of the individual is not charged to tax. Apart from marriage there is no other occasion when gift received by an individual is not chargeable to tax. Hence, immovable property received on occasions like birthday, anniversary, etc., without any consideration will be charged to tax.

Taxability of immovable property received without consideration i.e., gift from friends

Gifts (i.e. immovable property received without consideration) received from relatives are not charged to tax (meaning of relative has been discussed earlier). Friend is not a relative as defined in the above list and hence, gift received from friends will be charged to tax (if other criteria of taxing gift are satisfied).

Tax treatment of gift of immovable property located abroad

If the conditions discussed in earlier part (regarding the taxability of gift of immovable property) are satisfied, then gift of immovable property will be charged to tax whether the property is located in India or abroad.

Illustration:

Taxability in a case where an immovable property is received for less than its stamp duty value

 Apart from taxing immovable property received without consideration, i.e., received as gift, the Income-tax Act has also designed provisions for taxing immovable property received for less than its stamp duty value. If following conditions are satisfied, then immovable property received by an individual or HUF for less than its stamp duty value will be charged to tax:

  1. Any immovable property is acquired by an individual or a HUF
  2. The immovable property is a „capital asset‟ within the meaning of section 2(14) of the Act for such individual or HUF
  3. Such property is acquired for a consideration but the consideration is less than the stamp duty value and the difference exceeds Rs. 50,000.

In above case the excess of stamp duty value over the purchase price of the property will be treated as income of the purchaser.

When immovable property received by an individual or HUF for less than its stamp duty value is not charged to tax

1) In following cases, nothing will be charged to tax in respect of immovable property received for less than its stamp duty value :Property received from relatives.

Relative for this purpose means:

  •  In case of an Individual

 ♦ Spouse of the individual;

♦ Brother or sister of the individual;

♦ Brother or sister of the spouse of the individual;

♦ Brother or sister of either of the parents of the individual;

♦ Any lineal ascendant or descendent of the individual;

♦ Any lineal ascendant or descendent of the spouse of the individual;

♦ Spouse of the persons referred to in (b) to (f).

In case of HUF, any member thereof.

♦ Property received on the occasion of the marriage of the individual.

♦ Property received under will/ by way of inheritance.

♦ Property received in contemplation of death of the donor.

♦ Property received from a local authority [as defined in Explanation to section 10(20) of the Income-tax Act]

♦ Property received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C).

♦ Property received from a trust or institution registered under section 12AA.

Illutsration:

Tax treatment of movable property received as gift by an individual or HUF

If the following conditions are satisfied then value of prescribed movable property received by an individual or HUF will be charged to tax:

  • Prescribed movable property is received without consideration (i.e., received as gift).
  • The aggregate fair market value of such property received by the taxpayer during the year exceeds Rs. 50,000.

In above case, the fair market value of the prescribed movable property will be treated as income of the receiver.

Prescribed movable property means shares/securities, jewellery, archaeological collections, drawings, paintings, sculptures or any work of art and bullion, being capital asset of the tax payer.

Considering the above definition, nothing will be charged to tax in respect of gift of nay item being a movable property other than covered in the above definition, e.g., nothing will be charged to tax in respect of a television set received as gift, because a television set is not covered in the definition of prescribed movable property.

When prescribed movable property received without consideration, i.e., received as gift by an Individual or HUF is not charged to tax

 In following cases, nothing will be charged to tax in respect of prescribed movable

property received without consideration:

Movable Property received from relatives.

    Relative for this purpose means:

  • In case of Individual

♦ Spouse of the Individual;

♦ Brother or sister of the Individual;

♦ Brother or sister of the spouse of the Individual;

♦ Brother or sister of either of parents of the Individual;

♦ Any lineal ascendant or descendent of the Individual;

♦ Any lineal ascendant or descendent of the spouse of the Individual;

♦ Spouse of the persons referred to in (b) to (f).

  • In case of HUF, any member thereof.

♦ Movable Property received on the occasion of the marriage of the individual.

♦ Movable Property received under will/ by way of inheritance.

♦ Movable Property received in contemplation of death of the donor.

♦ Movable Property received from a local authority [as defined in Explanation to section

10(20) of the Income-tax Act].

♦Movable Property received from any fund, foundation, university, and other educational

♦ Institution, hospital or other medical institution, any trust or institution referred to in Section 10(23C).

♦ Movable Property received from a trust or institution registered under section 12AA.

Illustration:

Taxability when prescribed movable property is received by an individual or HUF for less than its fair market value

If the following conditions are satisfied then prescribed movable property (meaning has been discussed earlier) received by an individual or HUF will be charged to tax:

  1. Prescribed movable property is acquired by an individual or HUF.
  2. The aggregate fair market value of such properties acquired by the taxpayer during the year exceeds the consideration paid for these properties by Rs. 50,000. In other words, the aggregate fair market value of all such properties is higher than the consideration paid and the difference is more than Rs. 50,000.

Considering the definition of prescribed movable property (as discussed earlier), nothing will be charged to tax in respect of gift of any item, being a movable property other than covered in the above definition. e.g., Nothing will be charged to tax in respect of a television set received as gift because a television set is not covered in the definition of prescribed movable property.

When prescribed movable property received for less than its fair market value by an individual or HUF is not charged to tax

Movable Property received from relatives.

 Relative for this purpose means:

  • In case of an Individual

♦ Spouse of the individual;

♦ Brother or sister of the individual;

♦ Brother or sister of the spouse of the individual;

♦ Brother or sister of either of the parents of the individual;

♦ Any lineal ascendant or descendent of the individual;

♦ Any lineal ascendant or descendent of the spouse of the individual;

♦ Spouse of the persons referred to in (b) to (f).

 

  • In case of HUF, any member thereof.

♦ Movable Property received on the occasion of the marriage of the individual.

♦ Movable Property received under will/ by way of inheritance.

♦ Movable Property received in contemplation of death of the donor.

♦ Movable Property received from a local authority [as defined in Explanation to section 10(20) of the Income-tax Act]

♦ Movable Property received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C).

♦ Movable Property received from a trust or institution registered under section 12AA.

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