The word ‘gift’ generally brings with it a feeling of reward and gratitude, without any obligation on part of the recipient. However, little does a recipient know that the gift could also have a tax incidence associated with it.
Broadly speaking, the genesis of taxing gifts in India started with the introduction of the Gift Tax Act, 1958. The Gift Tax Act followed a ‘donor based’ taxation, wherein the gifts were taxed in the hands of the donor at a flat rate of 30% with a basic exemption of Rs.30,000. The Gift Tax Act was repealed with effect from October 1998 and the donor as well as the recipient were not required to pay taxes on the gifts given / received. This was a big change in the tax regime vis-à-vis gifts.
