[QnA] Can I Claim Income Tax Benefits on Selling Gifted Jewellery? Key Questions on Gift Taxation in India Answered

• Are gifts from relatives taxable in India?

A: Gifts from relatives are exempted from Tax in India. It is defined under section 56(2)(x) of the Income Tax Act. Gifts from relatives are tax-free, irrespective of their value.

Relatives are strictly defined in the Income Tax Act and such relatives include :

1. Spouse
2. Siblings of the individual or spouse
3. Siblings of parents (uncles and aunts)
4. Lineal ascendants or descendants (parents, grandparents, children, grandchildren, etc.)
5. Spouse of any of the above

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If you receive a gift from a cousin and the total value of such gifts from non-relatives (including cousins) exceeds ₹50,000 in a financial year, the entire amount becomes taxable under the head "Income from Other Sources."

• What happens if I get several small gifts from various family members during one year?

If the gifts are from relatives, there is no limit, and they remain tax-free. On the other hand, gifts from non-family members total more than ₹50,000 throughout a fiscal year are subject to taxation as "Income from Other Sources.

• If a relative gifts gold or jewellery with a very high value, is it taxable?

The value is irrelevant if the gift is from a defined relative. For instance, receiving ₹1Crore worth of gold from your father is tax-exempt. To prevent issues during evaluations, it is advisable to have a gift deed or declaration for valuable things.

• If I sell the jewellery given to me later, can I still claim any tax benefits?

There isn't a direct tax benefit for selling jewellery as a gift. However, the original purchase price paid by the donor is the acquisition cost for capital gains calculations, and the donor's holding period is added to yours. To avoid any kind of confusion with the tax authority its adviced to keep all kinds of records and documentation available that can prove such purchase.

• If I receive gifts during my wedding, is such jewellery taxable?

No, gifts received during a wedding are exempt from tax. It is irrelevant whether such gifts are from relatives or non-relatives. The provision for such exemption is given under Section 56(2)(x) of the Income Tax Act. This exemption will apply to monetary gifts, jewellery, property or other valuable items irrespective of the value of such gift. It is always better to maintain proper documentation or records of high-value gifts that also mention the givers of such gifts. This is advised to avoid confusion with tax authorities if such a situation arises. Remember, this exemption is only available for wedding gifts, and if any income is generated from those gifts, for example, rent from gifted property, etc., it will be taxable.

• In what ways do shares that are gifted differ from shares that are purchased in terms of taxation?

Based on the donor's initial acquisition cost and holding duration, capital gains tax is applied when you sell gifted shares. If your mother gave you shares she owned for ten years, you will still profit from her long-term capital gains rate even if you sell the shares immediately.

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Shares gifted by a relative remain tax-free; however, tax authorities might examine the transaction if there is a covert intent to transfer ownership without the necessary paperwork. To prevent conflicts, consistently record such transfers using a gift deed.

Any dividend paid out after the shares are given as gifts is subject to taxation by the recipient. You have to pay tax on the income if, for instance, you receive shares as a gift, and they produce dividends of ₹1 lakh.

• If a relative gives me a car as a gift, do I have to pay registration fees?

Yes, you must pay re-registration fees to transfer ownership of the vehicle. If the car comes from a relative, there is no income tax to pay, but the state's road transport office (RTO) will charge for the transfer of ownership. A gift deed should be used in addition to the RTO's approved ownership transfer paperwork. Ensure the donor has paid off all outstanding debts, such as road tax, before transferring the car.

• What is the tax applicability of car received as a gift from relatives and friends?

A car received as a gift by a relative as defined under the Income Tax Act is not taxable irrespective of its value. If a car is gifted to you by a friend or a non-relative, then it is considered as a taxable gift if its value exceeds Rs.50.000. Here the entire value of the car will be taxable under the head “Income from Other Sources” in the hands of the recipient. In this case the fair market value of the car is considered for calculating the Rs.50,000 value. An exemption to this is if the gift is received on certain occasions such as marriage, then there is no tax even if it is given by a non-relative or friend.

• Can I claim any tax benefits on a home loan for a gifted house?

If you take a home loan for a house gifted to you, tax benefits under Section 80C and 24(b) of the Income Tax Act are not available for paying back the principal or interest on the loan used to buy it. This is because the loan wasn't initially taken to purchase or construct the house. On the other hand, if you take a loan for the renovation, repair or reconstruction of the gifted house, a deduction under Section 24(b) can be claimed for the interest paid to ₹30,000 per year.

•  Are gifts received as part of inheritance taxable?

Gifts received as part of inheritance are entirely tax-free in India. This applies to assets like money, property, jewellery, or shares passed down through a will or a succession. Any income earned from the inherited assets, whether rent from a property or dividends from shares, will be taxable. It is vital to keep the documents that prove the nature of inheritance, whether a will or a succession certificate.

• What if the recipient of a gift is a minor?

The tax treatment of gifts given to minors is determined by the revenue they generate. Even though the gift is tax-free, any income it receives—such as interest, rent, or dividends—will be combined with the parent's income, whichever is higher overall. This implies that the parent will tax the revenue from the minor's gifts. This is provided in Section 64(1A) of the Income Tax Act. Income generated from a minor's abilities or talents, such as money from their job or business, is exempt from the clubbing clause. As a result, any money the minor earns through their efforts will be handled differently and subject to direct taxation.

•  What are the penalties for failing to disclose taxable gifts?

If taxable gifts are not disclosed in your income tax return, you will face penalties and attract interest charges. Section 271(1)(c) of the Income Tax Act allows tax authorities to impose a penalty for concealing income or providing inaccurate information. Suppose the total value of the gifts from Non-Relatives exceeds ₹50,000 and is not reported in that financial year. In that case, it will be treated as ‘Income from Other Sources’ and attract tax repercussions, respectively. It is better to maintain all kinds of documents, records and proofs regarding gifts received just in case of confusion from the tax authorities.

• Are gifts from friends taxable in India?

According to the Income Tax Act of 1961, presents given by friends that amount more than ₹50,000 during a fiscal year are subject to taxation.

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Gifts from friends that over the threshold are taxable since they are not considered "relatives" under the Act. Gifts should be properly documented to confirm the occasion and nature of the present.

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