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Gift Tax Act was repealed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