What are the tax implications of receiving a gift?

No, you are not.

However, if the gift came from someone other than a relative, say a friend, you would have had to pay taxes to be on the right side of the law.

As regards the tax treatment of donations, the rules are quite specific. Donations received from relatives are fully exempt. Donations from persons who are not relatives are subject to tax. ₹Taxes of 50,000 per year are also exempt.

Gifts that are worth more ₹50,000 of non-relatives are taxed on the total value of the donation. That is, if the value of the donation is ₹75,000, the tax will be applied to the entire amount.

There is one exception to this rule: marriage, the only occasion on which gifts from family and friends are completely exempt from tax.

In April 1958, the government introduced a gift tax, regulated by the Gift Tax Act 1958 (GTA), to tax gifts made in certain specific circumstances. The Act covered gifts in the form of cash, bills of exchange, bank cheques or anything of value.

The Act was repealed in 1998, and the taxation of gifts was subsequently incorporated into the Income Tax Act under section 56(2).

Gift from a family member vs. gift from an employer

The definition of “relatives” for the purposes of the gift tax exemption is broad. It includes your spouse, parents, grandparents, siblings, your spouse’s siblings, your parents’ siblings, and direct ancestors and descendants.

Section 56(2) of the Income Tax Act provides that any sum of money or any property received without consideration (i.e. as a gift) is taxable as “income from other sources” if the value of such gift exceeds ₹50,000 in a fiscal year, except in the case of gifts received from relatives.

However, the Act views gifts received from an employer differently. These are considered a benefit and are taxable as part of the employee’s wage income. The value of the gift is added to the employee’s total income and is taxed accordingly.

There are exceptions: Gifts on ceremonial or ritual occasions, up to a limit of ₹5,000 per occasion, are tax-exempt.

In addition, according to a change to the income tax provisions, the donation of money that exceeds ₹50,000 levied by a resident on a non-resident Indian (NRI) who is not his relative is taxable in India since 2019, according to Prakash Hegde, principal consultant, direct tax at Acer Tax & Corporate Services, a Bengaluru-based management consulting firm.

Why should you report gifts?

There are good reasons to report gifts on your tax return, even if they are tax-exempt. “Reporting gifts provides documentation and proof of the source of the funds, which can be helpful if the tax authorities ask about the source of any investments or expenses in the future. This can help reduce unnecessary scrutiny or questions,” says Hegde.

There are many cases where people have had to undergo detailed scrutiny due to donations of sums or property received, particularly when the amount involved was substantial.

Taxpayers can declare any exempt income in the exempt income (EI) list in the ITR. However, Hegde points out that the exempt income list does not have a specific column for declaring donations. They can be declared in the “other exempt income” column.

“Any amount received from a family member is exempt and should ideally figure in the exempt income list. This is particularly important when it comes to items like jewellery, which can be sold in the future,” says Nitesh Buddhadev, Founder, Nimit Consultancy.

Gifts from non-relatives must be reported on the income tax return, Buddhadev adds.

Gifts from an employer will be part of the employee’s salary. “For example, when an employee receives an Amazon voucher as a quarterly bonus, it will be included in Form 16,” says Buddhadev, stressing that while it is the employer’s duty to deduct taxes on such gifts, it is prudent for employees to declare them and pay the applicable taxes if TDS (tax deducted at source) is not deducted.