Taxation of Gifts in India
CA. Divakar Vijayasarathy
DVS Advisors LLPIndia-Singapore-London-Dubai-Malaysia-Africa
www.dvsca.com
Presentation Schema
What is Gift Tax History of Gift Taxation in India
Earlier Provisions Relating to Gift
TaxCurrent Scenario Meaning of Gift
Taxability Without
Consideration
Taxability With Inadequate
Consideration
Caveats for Immovable
PropertyExemptions Important
Definitions
Illustrations Caveats Judicial Precedents
Gift Tax/Inheritance
Tax in Other Countries
What is Gift Tax?
Gift - a benefit given by one person to another in cash or kind out of love and affection
At times, used as a means for tax evasion
Hence, provisions of taxing gifts to curb such practices
History of Gift Taxation in India
Gift Tax Act, 1958
01.04.1958 to 31.03.1987 -taxed @ rates
specified in Schedule I
01.04.1987 to 30.09.1998 –taxed @ 30%
Gift Tax Act was repealed
in the year 1998
01.10.1998 to 01.09.2004 –No gift tax in
India
From 01.09.2004 –Taxation on
gifts was included in
the Act under Sec 56 (2)(v) -
Applicable upto
31.03.2006
01.04.2006 to 30.09.2009 -Applicability
of Sec 56 (2)(vi)
01.10.2009 to 31.03.2017 -Applicability
of Sec 56(2)(vii)
01.06.2010 to 31.03.2017 -Applicability
of Sec 56(2)(viia)
At present Sec 56(2)(x) is
applicable from
01.04.2017
Taxable in the hands of donor Taxable in the hands of recipient
Sec 56(2)(v)Applicable from 01.09.2004 to
31.03.2006
Amount more than Rs. 25,000
Received without consideration
By an individual or HUF
Sec 56(2)(vi)
Received without consideration by an
individual or HUF
Aggregate amount more than Rs. 50,000
Applicable from 01.04.2006 to
30.09.2009
Sec 56(2)(vii)
Applicable from 01.10.2009 to
31.03.2017
Without Consideration
Aggregate amount more than Rs. 50,000
Immovable property wherein SDV > Rs.
50,000
Other Property wherein aggregate FMV > Rs. 50,000
With inadequate consideration
Immovable Property, whereby difference
between consideration and SDV > Rs. 50,000
Other Property, whereby difference
between consideration and
aggregate FMV > Rs. 50,000
Received by individual or HUF
FMV- Fair Market ValueSDV- Stamp Duty Value
Sec 56(2)(viia)
Applicable from 01.06.2010 to 31.03.2017
Firm or Pvt ltd company
receives shares of Pvt ltd company
Without consideration wherein aggregate FMV > Rs. 50,000
With a consideration whereby difference
between consideration and aggregate FMV >
Rs. 50,000
Current Scenario – Sec 56(2)(x)
Applicable from 01.04.2017
Donor and recipient – any person
Any gift
Meaning of Gift
Sum of money
Movable property
Immovable property
For inadequate consideration Without
consideration
Taxability Without Consideration
exceeds Rs. 50,000
Sum of money, aggregate value of
whichOther property,
aggregate FMV of which
Immovable property, SDV of which
Full amount is taxable
Taxability With Inadequate Consideration
Excess of aggregate FMV over consideration > Rs. 50,000 Excess amount is taxable
Immovable Property
Other property
Excess of SDV over consideration is more than
Rs. 50,000 (or)5% of considerationWhichever is higher
Excess amount is taxable
Caveats for Immovable Property
• SDV on date of agreement shall be taken provided consideration or part of it has been paid through banking channels on or before the date of agreement
If date of agreement and date of registration of immovable property is
different
• The Assessing Officer may refer the valuation to the Valuation Officer
If SDV of immovable property is disputed
Exemptions Relatives
Occasion of marriage
Will or inheritance or in contemplation of death of donor
From any local authority, fund, foundation, university, institution, etc. referred under Sec 10
From or by any trust or institution registered under Sec 12A or 12AA
Few exempted transfers under Sec 47
From an individual by a trust created solely for the benefit of its relative
Relative
Brother / sisterSpouse
Lineal ascendant
Individual
Parents
Lineal ascendant
Lineal descendant
Brother / sister
Brother / sister
Spouse of the relatives mentioned above shall also be included
HUF
Any member
PropertyCapital Asset
Immovable property
Land
Building
Land & Building
Other Property
Shares and securities Jewellery
Archaeological collections Drawings
Paintings Sculptures
Bullion Any work of art
Fair Market Value – Rule 11UA
Jewellery• Price in open market• Purchased from
registered dealer –invoice value
• Other purchase –Valuation report of price in open market if value > Rs. 50,000
Work of Art• Price in open market• Purchased from
registered dealer –invoice value
• Other purchase –Valuation report of price in open market if value > Rs. 50,000
Quoted Shares and Securities
• Transacted in recognised stock exchange –transaction value
• Other than transacted recognised exchange – lowest price quoted in any recognised stock exchange on valuation date or preceding trading date
Unquoted equity shares
• Net asset method
Unquoted shares and securities other than unquoted equity shares• Price in open market• Mandatory valuation
report
Illustration 1
‘A’ receives Rs. 25,000 from ‘X’ and Rs. 50,000 from ‘Y’
as gift, both being non-relative
Total amount received by ‘A’ is
Rs. 75,000 which is > Rs.50,000
Rs.75000 is taxable in the hands of ‘A’
Illustration 2
Mr. A purchases a plot of land from Mr. B for Rs. 19 lakhs
SDV of the property is Rs. 20 lakhs
Excess of SDV over consideration
= Rs. 1 lakh
Higher of Rs. 50,000 and Rs. 95,000 (5% of Rs. 19 lakhs)
Hence, excess amount of Rs. 1 lakh is taxable
Illustration 3
‘A’ sells jewels having FMV of Rs.
1,00,000 to her niece ‘B’ for Rs.45,000
Excess of FMV over consideration is
Rs.55,000 which is > Rs.50,000
Rs. 55,000 is taxable
Exemption is not available since ‘niece’ is not covered under the definition of relative
Caveats
Gift received from employer by an employee is taxable under the head “Salary”
Management or control rights of Indian company, even though falling under the definition of capital asset, areexcluded from the definition of property and hence no taxability on being gifted
Gift of agricultural land, not being a capital asset, may not taxable (Contradictory view in Judicial Precedent 2)
Provisions of FEMA should be examined for cross-border gifts
Judicial PrecedentsGift received from 'relative', irrespective of whether it is from an individual relative or from a group of relatives is exempt from tax -
Vineetkumar Raghavjibhai Bhalodia v. Income tax Officer, Rajkot Wd. 5(4), Morbi [2011]11 taxmann.com 384 (Rajkot)
Agricultural lands fall under definition of an immovable property, hence, covered under ambit of section 56(2)(vii)(b), it is immaterialwhether they fall under definition of capital asset or stock-in-trade - Income Tax Officer, Ward- 2(1), Alwar vs. Trilok Chand Sain[2019]101taxmann.com 391 (Jaipur - Trib.)
HUF does not come under specified category of relative under section 56(2)(vii), Explanation (e); therefore, money received by an individualfrom HUF as gift would not be considered for exemption - Gyanchand M. Bardia vs. Income Tax Officer, Ward 1(2)(2), Ahmedabad [2018] 93taxmann.com 144 (Ahmedabad - Trib.)
Merely because 'gift' was given by donor at time of illness, or it was 'occasioned' while donor was undergoing treatment, would not by itselfmake it a gift in contemplation of death; same would be assessable - F. Susai Raju vs. Income Tax Officer, Corporate Ward-5(2), Chennai[2017] 78 taxmann.com 81 (Chennai - Trib.)
Bonus shares can never be considered as received without consideration or for inadequate consideration - Deputy Commissioner of Income-tax, Central Circle-2 (2), Bengaluru vs. Dr. Rajan Pai [2017] 82 taxmann.com 347 (Bangalore - Trib.)
Gift Tax/Inheritance Tax in Other Countries
United Kingdom
• Inheritance Tax to be paid if value more than £325,000• 40% on part above the threshold• No inheritance tax on small gifts• People receiving gifts and if donor dies within 7 years, inheritance tax to be paid
Japan
• Inheritance taxes apply to property, money, or assets• All heirs, and recipients of a gift, who live in Japan have to pay inheritance and/or gift tax, regardless of
their nationality• Progressive rate of taxation – from 10% to 55%• Standard amount of ¥30 million is allowed as deduction
Germany
• Inheritance tax is charged on transfer of property that occur by reason of death• Progressive tax rate – from 7% to 50%• Individual heirs are typically responsible to pay inheritance tax if either the deceased was or the heir is a
German resident
Contd…
France
• If the deceased considered French resident for tax purposes then inheritance tax applies on all its assets• If the heirs are not French citizens or residents, the estate is still taxed in France• Rate of taxation ranges from 5% to 60%• Cash and movable property outside of France are not subject to French Inheritance Tax for non-
residents
Singapore
• Exemption threshold is S$200• If a gift exceeds the exemption threshold, then full value of the gift is taxable• Cash and non-cash gifts relating to festive and special occasions which do not exceed the exemption
threshold of $200 are considered to be not substantial in value and are not taxable• Gifts on account of bereavement – wreath, condolence tokens, etc. are not taxable
United States
• The donor is generally responsible for paying gift tax• Rate of taxation ranges from 18% to 40%• Gifts to spouse, political organisation, qualifying charities are excluded• Annual exclusion of $ 15,000
Thank YouDVS Advisors LLP
India-Singapore-London-Dubai-Malaysia-Africa
www.dvsca.com
Copyrights © 2019 DVS Advisors LLP
Credits and AcknowledgmentsJugal Gala
DVS Research Team