Whether you're getting money from your parents, transferring property to your kids, or receiving shares from a relative, whatever the gift, it's worth knowing how income tax rules actually treat it before the transaction happens. Tax treatment isn't uniform. It depends on factors like what's being gifted, how much it's worth, and how the giver and receiver are related to each other.
Let's take a look at which gifts stay exempt from tax, which ones trigger a tax liability, and what disclosure obligations taxpayers need to keep in mind.
What is considered a 'Gift' under the Income-tax Act?
A gift generally means money, movable or immovable property received without paying anything or by paying much less than its actual value.
“While the Income-tax Act does not define the term "gift" exhaustively, its taxability is governed by Section 56(2)(x), which taxes specified receipts unless they fall within prescribed exemptions,” says CA Chintan Ghelani, Partner, Direct Tax, N. A. Shah Associates LLP.
“The provision covers cash, land, buildings, jewellery, shares, securities, archaeological collections, paintings, sculptures, bullion, virtual digital assets and certain other specified properties received without or for inadequate consideration,” he explains.
Are gifts received from family members or specified relatives taxable?
One of the biggest exemptions under the Income-tax Act relates to gifts received from specified relatives. Such gifts are fully exempt from tax, irrespective of their value.
“For income tax purposes, a relative includes your spouse, parents, grandparents, children, grandchildren, brothers, sisters, your spouse's brothers and sisters, your parents' brothers and sisters, and the spouses of these relatives. In the case of an HUF, any member of the HUF is treated as a relative,” says CA Abhishek Soni, CEO & Co-founder, Tax2win.
Certain gifts received from non-relatives are also exempt from tax. These include gifts received:
- On the occasion of your own marriage
- Through a will or inheritance
- In contemplation of the donor's death
- From specified government bodies or approved charitable institutions
Tax treatment of gifts when received from non-relatives
If a gift is received from a non-relative, its taxability depends on the type of asset and its value. Here's how different gifts are taxed:
|
Type of gift received from non-relatives
|
When does it become taxable? |
| Cash | If the aggregate amount of cash gifts received during the financial year exceeds Rs 50,000, the entire amount becomes taxable. |
| Immovable property (received without consideration) | If the stamp duty value of the property exceeds Rs 50,000, the stamp duty value is taxable. |
| Immovable property (received for inadequate consideration) | The difference between the stamp duty value and the purchase price is taxable if it exceeds the prescribed safe harbour limits. |
| Specified movable properties (such as jewellery, shares, securities, paintings, bullion and similar assets) received without consideration | If the fair market value (FMV) exceeds Rs 50,000, the FMV is taxable. |
| Specified movable properties received for inadequate consideration | The difference between the fair market value (FMV) and the consideration paid becomes taxable if it exceeds Rs 50,000. |
Note : These rules apply to gifts received from non-relatives under Section 56(2)(x) of the Income-tax Act.
How should taxpayers report gifts in their Income Tax Return?
Taxable gifts should be reported under the head of income: ‘Income from Other Sources’ in the Income Tax Return. The nature and value of the gift should be correctly disclosed to avoid any future disputes.
If the gift is received from a specified relative or falls under an exempt category, it is not taxable, and there is no specific requirement to disclose every exempt gift in the Income Tax Return. Also, the new ITR utility for AY 2026-2027 has introduced a specific feature to report exempt incomes.
“However, where the gift amount is large, or where the transaction appears in bank statements, property records, demat accounts or AIS/SFT reporting, it is advisable to maintain clear records and disclose appropriately wherever the ITR form provides for exempt income or relevant reporting,” says Sudhir Kaushik, Co-founder & CEO, Taxspanner (a Zaggle company).
The key point is that exemption from tax does not mean exemption from explanation. If the Income Tax Department asks for clarification, the taxpayer should be able to prove the identity of the donor, relationship, genuineness of the gift and payment trail, he adds.
What support documents should you keep for a gift transaction?
Taxpayers should maintain a proper gift deed or declaration, donor’s PAN, address, bank transfer proof, proof of relationship, and evidence of the donor’s financial capacity where the amount is significant.
Depending on the nature of the gift, additional records should also be maintained, according to Kaushik.
- For immovable property, they should keep the registered gift deed, stamp duty valuation, property documents and payment records.
- For shares or securities, demat statements, transfer records and valuation details should be maintained.
- For jewellery or other covered movable assets, invoices, valuation reports and gift declaration should be preserved.
For large family gifts, documentation is especially important because the tax exemption depends not only on the relationship but also on the genuineness of the transaction, he adds.
A clear paper trail helps establish that the gift is genuine and not unexplained income routed in the name of a family gift.
