Definition
Gift Tax
Gifts above a threshold from non-relatives are taxable in the hands of the recipient, while gifts from specified relatives are exempt.
India abolished the separate gift tax, but gifts are now taxed under 'income from other sources'. If the total value of gifts received in a year from non-relatives exceeds a small threshold, the entire amount becomes taxable for the recipient.
However, gifts from specified relatives (spouse, parents, siblings, lineal ascendants/descendants and a few others), gifts received on the occasion of marriage, and inheritances are fully exempt regardless of value. Gifts of property and shares are valued at fair market value.
Beware the clubbing rules: income earned from a gift given to your spouse or minor child may be taxed back in your hands, so gifting within the family does not always shift the tax burden.
Related terms
- Clubbing of IncomeClubbing rules add certain income of your spouse or minor child to your own income to prevent tax avoidance through family transfers.
- Set-Off and Carry Forward of LossesThese rules let taxpayers adjust losses against income of the same or future years, subject to conditions on the type of loss and how long it can be carried forward.
- Capital Gains TaxCapital gains tax is the tax you pay on the profit from selling an asset such as shares, mutual funds, gold or property.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.