Gift Income from Relatives: Taxable or Exempt? Reporting Guide
- Farheen Mukadam
- Sep 11
- 10 min read
Gift income, particularly from relatives, is a topic that many taxpayers are unsure about. While it’s common to receive gifts on special occasions such as birthdays, weddings, and festivals, understanding the tax implications of these gifts is crucial. In India, the Income Tax Act lays down specific rules regarding the taxability of gifts, especially when received from relatives. Let us explore the nuances of gift income, explaining whether or not it is exempt from tax, who qualifies as a relative, and the reporting requirements for such income in your Income Tax Return (ITR). Whether you are gifting or receiving, knowing the rules will help you navigate your tax obligations effectively.
Table of Contents
Is Gift Income from Relatives Exempt from Tax?
Under the Income Tax Act, gifts received from relatives are generally exempt from tax. However, there are specific conditions that must be met for this exemption to apply. The key aspect to understand is that the tax treatment of gift income depends on the relationship between the giver and the receiver. The Income Tax Act specifies that gifts received from certain relatives are not taxable, regardless of the amount. This exemption is applicable to gifts received in cash, kind, or property from relatives within certain categories.
In cases where the gift is received from non-relatives or exceeds the prescribed limits, tax may apply. This article will further explain the criteria that determine whether or not a gift is taxable.
Definition of Gift under the Income Tax Act
A gift, as defined by the Income Tax Act, refers to any transfer of property, cash, or other assets without consideration, meaning the receiver does not pay any value in return for the gift. The definition includes gifts received in cash, kind, or property. The Act also specifies that the value of the gift is determined by the market value on the date it is received. For a gift to be considered exempt under Section 56 of the Income Tax Act, it must meet certain criteria, particularly in relation to the giver’s relationship to the recipient. A gift that falls outside these parameters may be subject to taxation.
Who Are Considered Relatives for Gift Exemption?
The Income Tax Act, 1961, provides certain exemptions for gifts received from specified relatives. These exemptions are designed to reduce the tax burden on gifts exchanged within families, recognising the financial support or affection that family members often provide. Understanding who qualifies as a "relative" under the Act is essential for determining whether a gift will be exempt from tax.
Below is a detailed breakdown of who is considered a relative for the purpose of gift exemption under the Income Tax Act:
1. Spouse
A husband or wife is considered a relative under the Income Tax Act for the purpose of gift exemption. This includes gifts exchanged between married couples, where the recipient does not have to pay tax on the gift received, regardless of the value. The gift may include cash, property, jewelry, or other assets. This exemption is based on the understanding that gifts between spouses are often part of personal financial management and mutual support.
Example: If your spouse gifts you a car or a sum of money, no tax is applicable, irrespective of the amount.
2. Parents and Parents-in-Law
Parents (both biological and adoptive) and parents-in-law (your spouse’s parents) are also considered relatives for gift exemption purposes. Gifts received from your parents or parents-in-law are fully exempt from tax. This exemption applies regardless of the value of the gift, as long as it is directly from one of these family members.
Example: If your parents gift you a property or your parents-in-law give you a substantial sum of money, there is no tax liability on the recipient.
3. Children and Siblings
Children (including adopted children) and siblings (brothers and sisters) fall under the category of relatives for gift exemption purposes. Additionally, gifts from the spouses of your children and siblings are also exempt from tax. This exemption reflects the familial bond and the support that may be given to or received from siblings and children within families.
Example: If your brother or sister gifts you an asset or money, it is exempt from tax. Similarly, if your child gifts you something, it falls under the exemption.
4. Grandparents and Grandchildren
Both grandparents and grandchildren are included in the list of relatives for gift exemption. This allows gifts from your grandparents to you, or from you to your grandchildren, to be exempt from tax. This exemption extends to both monetary gifts and tangible assets like property or jewelry.
Example: A gift from your grandfather or grandmother, such as a sum of money or a family heirloom, would not attract tax. Similarly, gifts given to your grandchildren are also exempt from tax.
5. Direct or Indirect Relationships
The term “relative” under the Income Tax Act applies to both direct and indirect relationships. A direct relationship includes immediate family members like parents, children, and siblings, while an indirect relationship extends to in-laws, such as parents-in-law, brothers-in-law, and sisters-in-law. The exemption thus applies to gifts received from both close and extended family members.
For example, gifts from your brother-in-law (your spouse’s brother) or sister-in-law (your spouse’s sister) qualify for tax exemption as well. Similarly, gifts from uncles or aunts (your parent’s siblings) may also qualify, depending on specific interpretations under the Act. It’s crucial to confirm the relationship to ensure proper exemption eligibility.
The Threshold for Taxable Gifts
While gifts from relatives are generally exempt, gifts from non-relatives may be subject to tax, especially when the value exceeds a certain threshold. UnderSection 56(2)of the Income Tax Act, if a gift received from a non-relative exceeds ₹50,000 in a financial year, the total amount becomes taxable under “Income from Other Sources.” However, gifts received from relatives, regardless of the amount, are exempt from this provision, as long as the relationship falls within the specified list.
Example: If a friend or distant relative gifts you cash worth ₹60,000, this will be subject to tax, as it exceeds the ₹50,000 threshold set for gifts from non-relatives.
Taxability of Gift Income
While gifts from relatives are exempt from tax, gifts received from non-relatives are taxable under certain conditions. If a gift from a non-relative exceeds ₹50,000 in a financial year, the total value of the gift is subject to tax. The tax rate will depend on the nature of the gift (cash, kind, or property).
For example, if you receive a gift of ₹60,000 from a friend or acquaintance, you would be required to include this amount in your total taxable income, and it will be taxed according to the applicable tax slab.
In addition, if the gift is in the form of property or assets, the fair market value of the property on the date of receipt is considered taxable, and it must be reported as income. Gifts that are of a high-value nature, such as expensive jewelry, property, or shares, may have additional implications for tax calculation.
Reporting Gift Income in the Income Tax Return
While gifts from relatives are generally exempt from tax, it is still necessary to report them in your Income Tax Return (ITR) if they exceed the ₹50,000 threshold from non-relatives. Even though the amount is exempt, it is important to disclose the source of the gift and provide details about the giver in your return to avoid potential scrutiny from the Income Tax Department.
If you receive a taxable gift (from a non-relative), it should be reported under "Income from Other Sources" in the ITR. The fair market value of the gift or its monetary equivalent will be added to your taxable income, and taxes will be levied according to the applicable tax slabs.
For gifts received from relatives, no additional steps are required, as these are not taxable. However, they still need to be reported in case the tax authorities request further details.
Income from Gifted Property
If the gift received is in the form of property (such as land, house, or shares), there are additional tax implications. The Income Tax Act specifies that if the gifted property generates income (for example, rental income from a gifted property or dividends from gifted shares), this income will be taxable in the hands of the recipient.
Moreover, if the gifted property is sold, capital gains tax may apply, depending on whether the property was held for a long-term or short-term period. The capital gains tax will be calculated based on the difference between the sale price and the fair market value of the property at the time of the gift, as well as the holding period of the asset.
It is important to consult a tax professional if you receive property as a gift to understand the long-term tax implications, especially in cases of rental income or property sales.
Conclusion
Gifts from relatives are generally exempt from tax under the Income Tax Act, making them an attractive way to transfer wealth. However, it is essential to understand the specific rules surrounding the taxability of gift income, especially when the gift is received from non-relatives. Gifts from relatives within the specified categories are exempt from tax, but larger gifts from non-relatives, or those exceeding ₹50,000 in a year, may be subject to tax. Always ensure that you report the details of the gifts accurately in your ITR, and seek professional advice when necessary to understand the tax implications of more complex gifts, such as property or shares.
For anyone looking for assistance in tax filing, it is highly recommended to download theTaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1: Is gift income from relatives completely exempt from tax?
Yes, gifts received from specified relatives are completely exempt from tax, no matter the amount. The relatives included in this exemption are your spouse, parents, children, siblings, and in-laws. However, gifts from non-relatives are subject to tax if they exceed ₹50,000 in a financial year. Such gifts must be included in your taxable income for the year.
Q2: How much gift can I receive from non-relatives without being taxed?
You can receive gifts from non-relatives up to ₹50,000 in a financial year without incurring tax liability. If the value of the gift exceeds ₹50,000, the excess amount will be taxable and must be included in your income for that year. Non-monetary gifts, such as property, are also considered taxable if their value exceeds this threshold.
Q3: Can I receive a gift of property from a non-relative without paying tax?
No, receiving property as a gift from a non-relative is taxable if the value exceeds ₹50,000. The fair market value of the property at the time of receipt will be considered. Additionally, if the property generates income, such as rental income, that income is also taxable under the head ‘Income from Other Sources’ or ‘Income from House Property.’
Q4: Do I need to report gifts from relatives in my Income Tax Return?
While gifts from relatives are exempt from tax, it is a good practice to report them in your Income Tax Return (ITR) to maintain transparency. This ensures that the gifts are not misunderstood as taxable income. Reporting the gift helps avoid any complications with the Income Tax Department.
Q5: Is the taxability of a gift different if it's in the form of property?
Yes, the taxability of a gift in the form of property differs from cash gifts. When you receive property as a gift, the fair market value at the time of the gift is considered. If the property is later sold, the difference between the sale price and the fair market value at the time of receiving the property will be subject to capital gains tax. Furthermore, any rental income or capital gains earned from such property will be taxable.
Q6: How do I calculate tax on a gift from a non-relative?
If you receive a gift from a non-relative exceeding ₹50,000, it will be added to your taxable income. The tax payable will depend on the applicable income tax slab based on your total taxable income for the year. For example, if the total taxable income, including the gift, falls within a higher tax bracket, the gift will be taxed according to that bracket.
Q7: Are there any exemptions on gifts in the form of money?
Gifts in the form of money from non-relatives are taxable if their value exceeds ₹50,000. However, if the gift is from a relative, there is no tax liability, irrespective of the amount. Relatives include your parents, spouse, children, and siblings, among others. Cash gifts from such relatives are fully exempt from tax.
Q8: If I sell a gifted property, do I need to pay tax?
Yes, if you sell a gifted property, you will be liable to pay capital gains tax on the profit made from the sale. The capital gains are calculated based on the difference between the sale price and the fair market value of the property at the time of receiving the gift. If the property was held for more than 24 months before the sale, it will be subject to long-term capital gains tax (LTCG); otherwise, short-term capital gains tax (STCG) will apply.
Q9: What happens if I don’t report a taxable gift in my ITR?
Failing to report a taxable gift from a non-relative can lead to penalties, fines, or even scrutiny from the Income Tax Department. It is essential to report all taxable gifts in your ITR to avoid legal complications. If the authorities discover unreported taxable gifts, they may initiate proceedings for tax evasion, which could result in additional charges or legal action.
Q10: Can I gift assets to my children without them paying tax?
Yes, you can gift assets to your children without them having to pay tax. Gifts to children are fully exempt from tax, regardless of the amount. However, any income generated from the gifted assets, such as rental income or interest, will be taxable in the hands of the child. The tax liability arises from the income, not from the gift itself.
Q11: What should I do if I receive a large gift from a non-relative?
If you receive a gift exceeding ₹50,000 from a non-relative, you must include the gift’s value in your taxable income. The gift will be taxed according to the applicable tax slab based on your total income. If you’re unsure about how to report the gift, it’s advisable to consult a tax professional to ensure accurate filing and avoid any potential issues with the Income Tax Department.
Q12: Are there any exemptions for gifts received during weddings?
Gifts received during weddings are exempt from tax, regardless of whether they are from relatives or non-relatives. However, if the value of the gifts exceeds ₹50,000 and are not given as part of the wedding ceremony (such as cash or property gifts), they may be taxable. Gifts like jewellery or property given as part of the wedding ceremony are generally not taxable, as long as they are within the social norms of wedding gifts.
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