Gift Tax in India - Section 56(2)(vii) of Income Tax Act, 1961

Gift Tax in India a brief run down

History
Gifts were taxed under The Gift tax Act, 1958 which was made in-operational from 1.10.1998. In the finance act 2004 a new section 56(2)(v) was introduced in the Income Tax Act, 1961, under which Gift if they are more than Rs.25,000 are taxable as “Income from Other Sources”. For the period 1.9.2004 to 1.4.2006 this was applicable. From 1.4.2006 Gift worth more than Rs.50,000 were taxed as “Income from Other Sources” under section 56(2)(vi) of The Income Tax Act, 1961.

Features of Gift Tax

• This provision applies only to individuals and HUF (Hindu Undivided Family) (ie) only these category of assesses need to pay Gift Tax.

• Gifts from Relatives are 100% exempt – meaning this provision applies only for gifts from non relatives. Relative means :
  o Spouse of the individual;
  o Brother or sister of the individual;
  o Brother or sister of the spouse of the individual;
  o Brother or sister of either of the parents of the individual;
  o Any lineal ascendant or descendant of the individual;
  o Any lineal ascendant or descendant of the spouse of the individual; and
  o Spouse of the person referred to in clauses (ii) to (vi).
  
• Gifts received at the time of marriage from a relative or non relative is exempted
  
• Gifts received under these special circumstances from non relatives are also exempt. The Special circumstances are as under
  
  o Gift received under a Will or by way of inheritance;
  o Gift in contemplation of death of the donor;
  o Gift from any local authority;
  o Gift from any fund or foundation or university or other educational institution or hospital or any trust or any institution referred to in Section 10(23C); and
  o Gift from any trust or institution, which is registered as a public charitable trust or institution under Section 12AA.
  
• Gifts in kind are exempted upto 1.10.2009 (ie) only gift received in cash was taxed upto 1.10.2009 – from 1.10.2009 a new section has been introduced 56(2)(vii) in The Income Tax Act, 1961 under which the following gifts exceeding value of Rs.50,000 are also taxable
  
  (i) immovable property being land or building or both;
  (ii) shares and securities;
  (iii) jewellery;
  (iv) archaeological collections;
  (v) drawings;
  (vi) paintings;
  (vii) sculptures; or
  (viii) any work of art;
  

Now the challenge has commenced, how to value these gifts? So separate valuation rules need to be prescribed. So more work for lawyers and tax payers….