income tax

Eligibility of Gifts in Kind for Tax Exemption Under Gift-tax Act

Eligibility of Gifts in Kind for Exemption under Clause (v) of Sub-Section (1)

Overview

This blog discusses the eligibility of gifts in kind for exemption under section 5(1)(v) of the Gift-tax Act, as per Circular No. 284 dated October 13, 1980, following consultations between the Board and the Ministry of Law.

Determining Eligibility for Exemption

  1. Legal Interpretation: The Board has considered whether gifts in kind qualify for exemption under section 5(1)(v). The conclusion reflects that gifts that are not monetary contributions do not qualify for this exemption.

  2. Clarification from Explanation 5: As stated in Explanation 5 to section 80G of the Income-tax Act, introduced by the Finance Act, 1976 (effective from April 1, 1976):

    • No Deduction: The explanation clearly notes that no deduction under this section will be allowed for any donation unless it constitutes a sum of money.

  3. Relation to Gift Tax Provisions: Under section 5(1)(v) of the Gift-tax Act, exemption is applicable to gifts made to institutions or funds deemed to have been established for charitable purposes, in accordance with section 80G of the Income-tax Act, 1961. Since section 80G applies solely to monetary donations as per its Explanation 5, it follows that exemptions under section 5(1)(v) of the Gift-tax Act are also limited to monetary gifts.

Conclusion

In summary, non-monetary gifts do not qualify for exemption under clause (v) of sub-section (1) of the Gift-tax Act per the current legal interpretations. This understanding aligns with the provisions stated in the Income-tax Act related to charitable donations. For further clarification or guidance, stakeholders are encouraged to refer to the specific texts of the relevant statutes.