Who Is Liable To Pay Gift Tax In India?

In India, the liability to pay gift tax primarily rests with the recipient of the gift, under the provisions of the Income Tax Act. However, there are certain conditions under which both the donor and recipient may be involved in the gift tax process, depending on the value and nature of the gift. Understanding who is liable to pay gift tax helps in ensuring compliance with the legal requirements and avoiding penalties.

Liability for Paying Gift Tax:

Recipient Liability: Under the Income Tax Act, the recipient of a gift is generally liable to pay the gift tax, especially when the gift exceeds ₹50,000 in value and is received from a non-relative. For gifts from relatives (as defined by the Income Tax Act), the recipient is exempt from paying any gift tax, regardless of the amount.

Non-Relative Gifts: If an individual receives a gift from a non-relative and the value of the gift exceeds ₹50,000 in a financial year, the recipient must include the value of the gift in their income tax return and pay tax on it under the head Income from Other Sources.

Relative Gifts: Gifts from relatives, such as parents, siblings, and spouses, are not subject to gift tax, and thus the recipient is not liable to pay any tax on such gifts.

Donor Liability (When Applicable): While the liability to pay tax typically falls on the recipient, there are specific situations where the donor may also be responsible for paying gift tax. For example, under certain provisions of the law, if the donor is gifting a large amount or certain property (e.g., agricultural land) in a manner that violates the tax laws, the donor may be required to pay tax or comply with additional reporting requirements.

Donor’s Responsibility in Specific Cases:

• If the donor gifts property and the transfer violates tax laws (e.g., if the property is transferred in a non-compliant manner or to avoid taxes), the donor may be liable for additional taxes, and the gift may be scrutinized by tax authorities.
• In some cases, the donor may also be required to file documentation like a gift deed, especially for high-value gifts, to ensure the transaction is legally recognized.

Special Conditions for Donor and Recipient: In certain cases, the donor may also be involved in the reporting process, especially when the gift exceeds the threshold for exemptions. For example, if the gift exceeds ₹50,000 from a non-relative, the recipient must report it on their income tax return and include the donor’s details, such as the donor’s name and relationship to the recipient.

Exceptions: There are exemptions to the liability for both donor and recipient. These include:

• Gifts received on the occasion of marriage.
• Gifts from relatives (as defined by the Income Tax Act).
• Gifts made to registered charitable organizations.
• Inheritance received from a will or as a bequest.

Gift Tax on Minor Children: If a minor child receives a gift, the liability to pay tax falls on the parent who receives the gift for the benefit of the child, as the child cannot file a tax return independently. This applies to gifts exceeding ₹50,000 from non-relatives.

Legal Actions and Protections:

Filing a Tax Return: The recipient of taxable gifts must report them in their income tax return (ITR) under the Income from Other Sources category. The tax on such gifts will be levied based on the applicable income tax slab.

Gift Deed: If the donor is gifting high-value property, a gift deed should be executed to legally document the transaction. This ensures transparency and helps prevent disputes regarding the ownership or taxability of the gift.

Penalty for Non-Compliance: If the recipient fails to report a taxable gift, they may be subject to penalties and interest for non-compliance with tax laws.

Example:

If an individual receives ₹1,00,000 in cash as a gift from a friend (a non-relative), they would be liable to pay tax on the gift, as it exceeds ₹50,000. The recipient must report this amount in their income tax return and pay tax on it as per their income tax slab.

However, if the same amount is received from a sibling (a relative), the recipient is not liable to pay any gift tax, as gifts from relatives are exempt from tax under the Income Tax Act.