The rules regarding taxation of gifts as per Income Tax Act, 1961 (‘the Act’) is applicable to Individual, Hindu Undivided Family (HUF), Company, Partnership Firm and every artificial judicial person.
Any receipt of money, immovable and movable property as gift or for inadequate consideration is taxable as “Income” of the recipient.
NRIs therefore need to consider the possibility of attracting tax on any transaction in the nature of gifts which is received in India for inadequate consideration.
Provisions regarding taxation of gift or receipt of any asset for inadequate consideration
- Sum of Money – If the aggregate amount of money received from one or more persons during a Financial Year (FY) exceeds Rs. 50,000, the whole of such amount is taxable.
- Assets – This includes both immovable property and specified movable property.
i. Immovable property
- An immovable property received as a gift is taxable if it’s Stamp Duty Value (SDV) exceeds Rs.50,000, the whole of such value (i.e. SDV) is taxable.
- If an immovable property is purchased for inadequate consideration i.e. if the difference between the SDV and the consideration for which it is bought is higher than the below amounts, the such differential amount is taxable:
- The difference between SDV and the consideration is Rs. 50,000 and
- The difference between SDV and the consideration exceeds 5% of the consideration
The difference between SDV and the consideration is taxed as “Income”
ii. Movable properties
- The movable assets (specified below) received as gift are taxable if the Fair Market Value (FMV) of such property exceeds Rs. 50,000.
- Shares and Securities
- Archaeological collection
- Any work of art
- If such movable asset is purchased for inadequate consideration and if the difference between the FMV and the consideration for which it is bought exceeds Rs. 50,000, such differential is taxable as income.
The difference between FMV and the consideration is taxed as “Income”.
- SDV – SDV means the value adopted or assessed or assessable by any authority of the Central/State Government for the purpose of payment of stamp duty in respect of an immovable property.
- Determination of FMV – for various assets is explained below.
- Shares and Securities
- Quoted shares – price recorded on the stock exchange
- Unquoted shares – value of such shares is to be computed as per prescribed rules.
- Other capital assets such as Jewellery, Bullion, Archaeological collection, Drawings, Paintings, Sculptures and any work of art – value of such asset shall be the price it would fetch in the open market.
- Exceptions – The receipt of sum of money, gift or purchase of movable and immovable property for inadequate considerationis not taxable even if it is exceeding the threshold of Rs.50,000/- if it is received.
- from any relative*; or
- on the occasion of marriage of the individual; or
- under a WILL or by way of inheritance; or
- in contemplation of death of the payer / donor or
- from any local authority or
- from any fund or foundation or university or other educational institution or hospital or other medical institution or
- from or by any specified trust or institution or
- Brother or sister of individual or of spouse
- Brother or sister of either parents
- Lineal ascendant/descendant of individual or of spouse
- Spouse of relatives mentioned in 2. to 4.
- Tax Rate -As receipt of gift is taxed as “Income from Other Sources”, rate of tax will depend on total income of the NRI as per slab rate of taxation under which the NRI is covered. The tax should be deposited with the Government before ROI.
The tax may need to be paid in advance if the overall tax is more than Rs. 10,000 to avoid any interest levy.
Key points to be kept in mind.
One observes the following typical transactions by NRI which may attract tax under the Act:
- NRI receives credit in NRO/ NRE bank account from friends/relatives which may not be repayable as such persons are not covered under definition of relative.
- NRI purchasesan immovable property or shares and securities of unlisted companies at a price which may not be in accordance with prescribed rules of valuation.
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