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Gift tax in India is applied when the value of the received gift exceeds ₹50,000 in the financial year. Gifts from non-relatives valued over ₹50,000 are taxable in India. The tax rate depends on your income tax slab (5%-30%). However, gifts from close relatives like parents, spouses, or siblings are tax-exempt. When calculating income tax on gifts received, the taxable value must be reported under “Income from Other Sources” while filing the ITR. As the Gift Tax Act 1958 was removed in 1998, the Gift Tax in India is included and regulated under the Income Tax Act.  This article will delve deeper into the taxes on gift under the Income Tax Act, its applicability, exemptions and how the taxable value is determined.

What is a ‘Gift’ under Income Tax Act?

A “Gift” under Income Tax Act refers to any money, immovable property, or movable property received by an individual from another person or organisation without any payment in return. This means the recipient doesn’t have to give anything in return to acquire the gift. From a taxation perspective, income tax gifts can be categorised into three main types:

• Monetary Gifts: Monetary gifts encompass any money received, including cash, checks, drafts, and bank transfers. Therefore, receiving money in any of these forms could be considered a gift for tax purposes.
• Movable Property Gifts: These include tangible items that can be moved, such as shares, bonds, jewellery, sculptures, paintings, and other valuable possessions. Additionally, the difference is generally considered a gift if a movable property is received at a price lower than its fair market value. For example, if you receive a valuable painting as a gift but the price is significantly less than its market value, the difference between the market value and the price paid would be treated as a gift.
• Immovable Property Gifts: Immovable property, such as land, buildings, and residential or commercial properties, is also considered a gift if received at a price lower than its stamp duty value. This means that the difference between the fair market value and the price paid is treated as a gift.

Gift Tax Exemptions in India

As mentioned, Income tax on gifts received is applicable when the total value of gifts exceeds ₹50,000 in a financial year. But, certain exemptions are available under income tax on gifts received, especially for gifts from close relatives or under special circumstances like weddings or inheritances. Below, we have given a detailed overview of those gift tax exemptions,

Gifts Under ₹50,000: Gifts received up to ₹50,000 during a financial year are exempt from tax. This means that no tax is applicable if the total value of gifts received is below this threshold.

• Property Received for Inadequate Consideration: If property is received for a price higher than its fair market value, the difference between the stamp duty value and the consideration paid is treated as a gift. This excess amount becomes taxable. However, it is exempt if the difference is less than ₹50,000.

• Gifts from Relatives: As per the Income Tax Act, Gifts received from the following relatives are generally exempt from taxes on gifts.
• 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 descendant of the individual.
• Any lineal ascendant or descendant of the spouse of the individual.
• Spouse of the persons referred to in (2) to (6).

However, any income generated from these gifts might be taxable under clubbing provisions of Income tax gifts. For example, if a gift is invested and earns interest, the interest income may be taxable.

• Wedding Gifts: Gifts received by a newly married couple from their immediate family members on the occasion of their marriage are comes under the gift tax exemption. This includes cash, jewellery, property, stocks, or gold.
• Gifts by Inheritance or Will: Gifts received through inheritance or a will are exempt from gift tax under the Income Tax Act.
• Gifts from Local Authorities and Charitable Trusts: Money received from local authorities, charitable trusts, funds, foundations, universities, or registered charitable organisations are generally exempt from tax. This also includes money received by meritorious students or patients under medical care.
• Money Received in Contemplation of Death: Similar to inheritance, money received in anticipation of a person’s death is exempt from income tax gift.

How is the Taxable Value of Gifts Determined?

The Income Tax Act provides guidelines on how to calculate the taxable value of gifts, both monetary and non-monetary. Gifts are taxable if they exceed certain limits, and the taxes on gifts depend on the type and value of the gift received. The table below explains how the taxable value is determined for various types of gifts:

Type of Gift	Gift Tax Applicability	Taxable Value of the Gift
Cash, Cheque, or Bank Transfer	If the total value of the gift exceeds ₹50,000	The entire amount received as a gift is taxable
Immovable property (e.g., land or building) received without payment	If the Stamp Duty Value of the property exceeds ₹50,000	The Stamp Duty Value of the property gifted is taxable
Immovable property bought at less than its Stamp Duty Value	If the difference between the Stamp Duty Value and the purchase price is more than ₹50,000	The difference between the Stamp Duty Value and the price paid is taxable. Example: If the Stamp Duty Value is ₹6 lakh and the purchase price is ₹4 lakh, the taxable amount is ₹2 lakh (6 lakh – 4 lakh).
Assets like jewellery, shares, paintings, and sculptures received without payment	If the Fair Market Value exceeds ₹50,000	The Fair Market Value of the asset is considered the taxable amount
Assets like jewellery, shares, paintings, and sculptures purchased and then gifted	If the Fair Market Value exceeds the original purchase price by more than ₹50,000	The taxable amount differs between the Fair Market Value and the original purchase price. Example: If a piece of jewellery has a Fair Market Value of ₹3.5 lakh and was originally bought for ₹2 lakh, the taxable amount is ₹1.5 lakh (3.5 lakh – 2 lakh).

How to Declare Gift Tax in India?

Gift tax is a form of direct tax levied on a gift recipient. In India, the recipient is responsible for declaring the value of the gift in their income tax return (ITR).

• Determine Taxable Value: Calculate the taxable value of the gift. This typically involves subtracting any exemptions or deductions that may apply.
• Include in ITR: Report the taxable value of the income tax gift under the “Income from Other Sources” category in your ITR.
• Compute Tax Liability: The taxable value of the gift is added to your total income for the financial year. Use your income tax slab rate to calculate the tax liability.
• Pay Tax: Pay the calculated gift tax amount along with your other income tax liabilities.

Gift Tax Provisions Relating to Stamp Duty

The stamp duty value is crucial when calculating gift tax on immovable property. Similar to the provisions under Section 50C, the stamp duty value is considered for determining the taxable amount in the case of property gifts. However, this value can sometimes be higher due to various factors, such as delays between the agreement and registration dates. Below, we discuss key provisions related to stamp duty value for gift tax purposes:

• Stamp Duty Value on the Agreement Date: If there is a gap between the date of the agreement and the date of registration, the stamp duty value on the agreement date is used for calculating gift tax, provided the following conditions are met:
• The dates of agreement and registration are different.
• Part or full payment is made through an account payee cheque, bank draft, or electronic transfer on or before the agreement date.
• Disputed Stamp Duty Value: If a taxpayer disputes the stamp duty value used by the stamp duty authority, the tax officer must refer the case to a Valuation Officer (VO). The VO will review the records, offer the taxpayer an opportunity to present their case, and then issue a written order stating the value. The lower value determined by the VO can be considered for gift tax purposes.
• Relaxation under Section 56(2)(x): If the stamp duty value exceeds the consideration received for the gifted property, a relaxation of up to 10% of the consideration is allowed. This excess amount will not be considered income from other sources.

Conclusion

In conclusion, gift tax in India applies to gifts exceeding ₹50,000, with several exemptions available for specific situations, such as gifts from relatives, wedding gifts, and inheritances. While gifts are taxed under the “Income from Other Sources” category in the Income Tax Act, the provisions provide guidelines on how to determine the taxable value for various forms of gifts, including monetary, movable, and immovable property. Exemptions, valuation methods, and considerations related to stamp duty help ensure the fair assessment of taxes on gifts, thereby simplifying the tax process for recipients.

Courtesy: Indiafilings

Tax Deducted at Source (TDS) on Interest Income: Due Dates for Payments and Returns

Understanding TDS on Interest Income

Section 194A of the Income Tax Act, 1961, mandates the deduction of tax at source on specific types of interest income. This mechanism ensures the timely collection of tax liabilities by the government.

Types of Interest Income Subject to TDS:

• Interest on Deposits:
  • Fixed Deposits (FDs)
  • Recurring Deposits (RDs)
  • Company Deposits
• Interest on Loans and Advances: Interest received on loans and advances may be subject to TDS under certain conditions.

TDS Applicability Thresholds:

• TDS is generally applicable when the annual interest income exceeds specific thresholds (e.g., Rs. 40,000 for individuals below 60 years and Rs. 50,000 for senior citizens for FDs).

TDS Rates:

• With PAN: 10%
• Without PAN: 20%

Exemptions and Deductions:

• Interest on Savings Accounts: Generally exempt from TDS.
• Interest Income Below Threshold: Individuals can claim exemption by submitting Form 15G (below 60 years) or Form 15H (senior citizens) if their total interest income remains below the taxable limit.

TDS Payment Due Dates:

• General Rule: The entity paying the interest income is typically responsible for deducting TDS within seven days from the end of the month in which the interest payment is made.

TDS Return Filing Due Dates:

• Quarterly Basis:
  • Q1 (April-June): July 31st
  • Q2 (July-September): October 31st
  • Q3 (October-December): January 31st
  • Q4 (January-March): May 31st of the following year

Key Considerations:

• Responsibility of the Payer: The entity making the interest payment is legally obligated to deduct TDS and fulfill the necessary reporting requirements.
• Penalties for Non-Compliance: Failure to comply with TDS regulations can result in penalties and interest charges for the entity responsible for the deduction.
• Importance of Accurate Record-Keeping: Maintaining meticulous records of interest income received and TDS deducted is crucial for both the payer and the recipient for tax compliance purposes.

Additional Details:

• TDS Certificate: The entity deducting TDS is required to issue a TDS certificate (Form 16A) to the recipient, which details the amount of TDS deducted.
• Tax Credit: The recipient can claim the TDS deducted as a credit against their overall tax liability during income tax return filing.
• Excess TDS Deduction: If TDS is deducted at a higher rate than applicable, the recipient can claim a refund during income tax return filing.

Individuals whose estimated tax liability is likely to be over Rs 10,000 in a financial year are required to pay advance tax that year.

Why you must pay your third advance tax installment by December 15

Many salaried individuals often make the mistake of assuming that advance tax payments are only for business persons or corporates.

However, the fact is that any individual whose estimated tax liability is likely to be over Rs 10,000 [after considering tax deducted and collected at source (TDS and TCS)] in a financial year is required to pay advance tax that year, as per Section 208 of the Income-Tax (I-T) Act, 1961. Resident senior citizens who do not draw any income from business or profession are exempted.

Advance tax is to be paid before the end of the financial year on the income that you would have earned in the same year. The due date for paying the third installment of advance tax for financial year 2024-25 is December 15.

This time round, the due date falls on a Sunday. While technically, you can make the payment on Monday, it is best to complete the process as soon as you can.

As per I-T rules, you have to clear your advance tax dues in four installments – June 15, September 15, December 15 and March 15 during the financial year itself.

In the case of salaried individuals, their employers deduct tax before depositing their salaries at the end of the month. However, they do not take into account several other sources of income, such as interest from deposits, capital gains booked on the sale of shares and mutual fund units, etc. On your part, when you compute your advance tax liability, you need to factor in these incomes as well.

Taxpayers are required to pay 15 percent of their estimated advance tax liability by June 15. By September 15, you should have paid 45 percent of the total amount due, 75 percent by December 15 and 100 percent by March 15.

However, if you are a self-employed businessperson or professional who has opted for the presumptive taxation scheme, the rules are different. Such individuals, too, have to pay advance tax, but they are allowed to make payment at one go — in the last quarter of the financial year, by March 15. This flexibility is provided after accounting for the challenges that small businesses may face while estimating their advance tax liability at the beginning of the financial year.

Payments through the I-T portal

To pay your dues, you need to log on to www.incometax.gov.in. If you haven’t done so already, you need to first register yourself using your PAN. Next, click on ‘e-pay tax’ under the ‘Quick Links’ menu on the left-hand side of the website. Follow the instructions to confirm your PAN, enter the OTP and proceed to select the right assessment year (2025-26) when you are paying advance tax for financial year (2024-25) and ‘Advance Tax (100) as the ‘type of payment’.  Click on ‘Continue’, enter the details and proceed to make the payment to complete the process.

Skipped advance tax payments? Know the consequences

Paying advance tax is mandatory for those with estimated tax liability of over Rs 10,000 during the financial year.

If you fail to adhere to the rules and due dates, you might have to shell out penalties. You will have to pay simple interest at the rate of 1 percent per month on the amount of less-than-required payment or non-payment of advance tax by the due date, for the period till the amount is paid.

The penal interest on the deficit amount applies only if the total advance tax paid is less than 12 percent and 36 percent of the advance tax due by June 15 and September 15, respectively. Similarly, penalty will come into play if the advance tax you have paid is less than 75 percent and 100 percent of the due amount by December 15 and March 15, respectively.

Installments for the financial year	Due date	Advance tax payable
First installment	June 15	15% of the total tax liability
Second installment	September 15	45% of the tax liability as reduced by the amount, if any, paid in the earlier installment
Third installment	December 15	75% of the tax liability as reduced by the amount, if any, paid in the earlier installment
Fourth installment	March 15	100% of the tax liability as reduced by the amount, if any, paid in the earlier installment

If you miss the last installment – March 15 – too, you can still clear the dues by March 31, but you will have to cough up one month of interest, as per Section 234C of the I-T Act.

However, if you decide to clear your tax liability at the time of filing tax returns before July 31 (due date for filing ITR for the previous financial year), the tax department will treat it as a default in advance tax payment. In such cases, you will have to pay an additional four months’ penal interest (1 percent per month) under Section 234B.

Source : Money control