Income Tax Exemption and Rules on Gifts as Income of Source

January 19, 2009

Income Tax

In this blog post I will be writing about the Income Tax rules related to the Gifts received by a person. There is many rules on receiving the Gifts based on the gifts nature and from whom the person has received the gift. The Income Tax Act 1961 has made change to the rules in 1st April 2006. We will look into the recent rules in this blog.

Not only the income, if a person receives a gift, if the value of the gift is exceeding the certain limit then he must add it in his income and pay the income tax. There are certain exceptions on declaring the gifts as income. This blog explains it in detail. If you have any doubts, please post it in the comments section. Subscribe to our future articles here.

Income Tax Exemption on Gifts

Gifts received From Relatives

As per the Income tax act, the Gifts received from any of your relatives are fully exempt from tax. Whether you are received the gifts as Cash, Cheque or any goods. You are not liable to pay the tax for these gifts. Here the “relatives” term defines by the Income Tax act as follows :

  • Spouse of the individual
  • Brother or sister of the individual
  • Brother or sister of the spouse of the individual
  • Brother or sister of either of the parents of the individual
  • Any lineal ascendant or descendant of the individual
  • Any lineal ascendant or descendant of the spouse of the individual,Spouse of the person referred to in clauses (ii) to (vi).

For example if you are receiving gift of Rs.100000 from your uncle ( your mother’s brother), it is fully exempt from the Tax. Whenever you get the gifts please apply the relations in the above list to ascertain whether you are liable to pay any tax for the received gift.

Gifts received From Non-Relatives

Here non-relatives means anyone who doesn’t come under the above mentioned relation for you. In this case you are tax exempt up to maximum of Rs.50000 for a financial year. If you receive the gift worth more than Rs.50000, you are liable to pay the tax what ever you received excess of the limit.  This rule applies when the gift is a sum of money, whether in cash, by way of cheque, bank draft or any articles which is value more than the Rs.50000.

For example you are receiving a gift of Company Shares from one of your team mate in your company or  when you are receiving a gift of Rs.100000 (cheque) for the best performing in your company (not a bonus), Rs.50000 is liable to pay tax.

Marriage Gifts

One very happy feature of the provision of taxation of gifts is that any gift received from any person on the occasion of the marriage of the gift’s recipient would not be liable to income tax. There is no monetary limit attached to this exemption. Note that, if you receive any gifts at the time of engagement or the marriage anniversary if liable to pay the tax.

Special Tax Exempt gifts

The following list of gifts are fully exempted from Tax whether the it is received as Cash, or any other form of the material doesn’t affect the exemption.

  1. Gift received under a Will or by way of inheritance
  2. Gift in contemplation of death of the donor;Gift from any local authority
  3. 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)
  4. Gift from any trust or institution, which is registered as a public charitable trust or institution under Section 12AA

Summary

I  hope this blog provides you enough information how to calculate the tax for your gifts. So, when ever you are receviving the gifts, please be careful if you are liable to pay the tax. Thanks for reading this post!!!

If you have any doubts, please post in the comments area so that I can answers all the questions.

Subscribe to our future articles here.

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471 Responses to “Income Tax Exemption and Rules on Gifts as Income of Source”

  1. Laxmikant Says:

    Dear Sir,
    I wish to gift Rs.2 lac to my wife & invest same in FD.
    Kindly advise the means to avoid clubbing of interest earned on FD with my income.
    Thanks and Regards,
    Laxmikant

    Reply

  2. riya Says:

    Sir,plz clear my doubt i received more than 2 lac cash from my friend who is not an indian and an American and he sent me as dollars and i received in my savings account in India as Rupees.Is it taxable sir?I have no other income..if taxable what is the upper limit?kindly reply me sir..

    Reply

  3. Nilesh Parasiya Says:

    I HAVE BEEN MARRIED SOMETIME BEFORE, I HAVE RECEIVED SOME GIFT FROM MY FRIEND, RELATIVES AND MY SPOUSE’ FATHER, WILL BE MENTION ALL GIFT IN ITR WITH PROOF OF RELATIONSHIP DETAILS???

    PLEASE ANSWER ME IMMEDIATLY. I WILL SEE UR REVERT

    NILESH PARASIYA

    Reply

  4. omprakash Says:

    can my wife take a gift from my grandfather ? if Yes what will be the amount she can take

    Reply

  5. Naveen Kumar Says:

    Mr. X (Indian National) has received Rs. 30 lacs from his Sister’ son (NRI) by electronic transfer in April 2011.
    The amount has been received to enable Mr. X to purchase a property.
    Please note that his relationship with his Sister’ son doesn’t fall within the meaning of Close relatives as mentioned in Schedule 1A of Companies Act, 1956.
    (I) the Amount cannot be treated as gift (implication of 56(2) of Income tax Act)
    (II) If considered as a loan, it has to be repaid after 3 years. (Foreign Exchange Management (Borrowing and lending in rupees) Regulations, 2000)
    (III) It is evident to note that no support has been provided / furnished to the bank at the time of of remittance.

    Query
    Can the loan from NRI (other than close relatives) be taken @ 0 %.
    It is being suggested to repay the amount as soon as possible to the lender, being Mr. X would not be in position to repay the amount in next 5 years.
    Further after 2-3 months, Sister son will gift the money to her mother ( Mr. X Sister). Further she will give the amount as gift to her brother (Mr. X).
    Please give your comments on the same.

    Relevant extract from RBI guidelines/ Companies is enclosed below
    As per RBI Guidelines : Can an individual resident Indian borrow money from his close relatives outside India?
    Yes, an individual resident Indian can borrow sum not exceeding USD 250,000 or its equivalent from his close relatives staying outside India, subject to the conditions that:
    1. the minimum maturity period of the loan is one year;
    2. the loan is free of interest; and
    3. the amount of loan is received by inward remittance in free foreign exchange through normal banking channels or by debit to the NRE/FCNR(B) account of the NRI.
    Close Relatives
    ‘Close relative’ means relative as defined in Section 6 of the Companies Act, 1956.
    Section 6 of the Companies Act, 1956
    [Meaning of “relative”.
    6. A person shall be deemed to be a relative of another if, and only if,—
    (a) they are members of a Hindu undivided family; or
    (b) they are husband and wife; or
    (c) the one is related to the other in the manner indicated in Schedule IA.]
    Schedule IA
    LIST OF RELATIVES

    1. Father.
    2. Mother (including step-mother).
    3. Son (including step-son).
    4. Son’s wife.
    5. Daughter (including step-daughter).
    6. Father’s father.
    7. Father’s mother.
    8. Mother’s mother.
    9. Mother’s father.
    10. Son’s son.
    11. Son’s son’s wife.
    12. Son’s daughter.
    13. Son’s daughter’s husband.
    14. Daughter’s husband.
    15. Daughter’s son.
    16. Daughter’s son’s wife.
    17. Daughter’s daughter.
    18. Daughter’s daughter’s husband.
    19. Brother (including step-brother).
    20. Brother’s wife.
    21. Sister (including step-sister).
    22. Sister’s husband.

    Further according to Foreign Exchange Management (Borrowing and lending in rupees) Regulations, 2000
    Borrowing in rupees by persons other than companies in India:-
    A person resident in India, not being a company incorporated in India, may borrow in rupees on non-repatriation basis from a non-resident Indian or a person of Indian origin resident outside India, subject to the following conditions:
    (i) the amount of loan shall be received by way of inward remittance from outside India or out of Non-resident External (NRE)/Non-resident Ordinary (NRO)/Foreign Currency Non-resident (FCNR)/Non-resident Non-repatriable (NRNR)/Non-resident Special Rupee (NRSR) account of the lender maintained with an authorised dealer or an authorised bank in India,
    (ii) the period of loan shall not exceed three years;
    (iii) the rate of interest on the loan shall not exceed two percentage points over the Bank rate prevailing on the date of availment of loan;
    (iv) where the loan is made out of funds held in Non-resident Special Rupee (NRSR) account of the lender, payment of interest and repayment of loan shall be made by credit to that account; and in other cases, payment of interest and repayment of loan shall be made by credit to the lender’s Non-resident Ordinary (NRO) or Non-resident Special Rupee (NRSR) account as desired by the lender; and
    (v) the amount borrowed shall not be allowed to be repatriated outside India.

    Reply

  6. Naveen Kumar Says:

    Is there any limit on amount which can be gifted among the relatives.

    Somebody has told me that gift to a relatives should not exceed 10% of your income

    Reply

  7. SS RAO Says:

    My mother has land purchased in 1987. I & my brother wish to sell off due to financial crisis. How can she gift the money to two sons.Do we have to pay capital gain tax on entire selling amount or Capital tax can be paid after repayments to house loan & Education loan (children account).

    Reply

  8. PW Says:

    Hello Sir,

    My husband (NRI) transferred me an amount X thro Western Union during FY 2010-11. He hasn’t paid any tax on it as there is no tax applicable in his country of residence. I am a resident Indian.

    Query –
    For me its an interest-free loan which I am going to repay but maybe after 7-8 years and I don’t intend to pay tax on it as its not an income for me actually. I am investing the money to generate income over years,however.
    How do I declare this amount while filing my returns for FY 2010-11. (Gift or Loan or something else?) Is there any upper limit for tax-free consideration in this case?
    My taxable income from salary and other sources is well below the limit for FY 2010-11.

    Reply

  9. asma Says:

    Hi,

    My husband has transfered an amountof 5 lakh 50 thousand(5,50,000). to my uncles (retired goverment employee) from his NRI account,which makes his total annual income 10 lakhs.Does my uncle need to pay income tax for this amount,and if yes,How much he has to pay.
    Please help.

    Reply

  10. T SRIDEVI Says:

    My father’s own sister wants to gift a house site to me worth 5 lacs. I am in the highest income tax bracket. Please advise me whether the value of the site gets added to my taxable income. How much Income Tax or Gift Tax needs to be paid for this transaction ?

    Reply

  11. lalit kumar Says:

    i have gift 150000/- to my father in law and 150000/- to my mother in law. is this abount taxable or not

    Reply

  12. ankur kumar saha Says:

    My annual income for the 2010-2011 was 5 lac & in that I have gifted 1.5 lac to my wife after paying tax in that fin. year & from that money my wife invested in share & mf from there she earn about rs 100000/-,my annual income for this fin. year(2011-2012) is abt. 5.5 lacs?

    1. weather the amt gifted to my wife was non taxable as per the gift act in that financial year(2010-2011) & what is the implication on my file as i have paid tax for that in the vary fin. year(2010-2011)
    2.wht the tax implication on my wife file & my file for this fin. year 2011-2012
    3. weather his income will be clubbed with my income in this fin.year(2011-2012) or I have to pay income tax on my own income & she have to pay income for his own income individually?

    Reply

  13. ritesh Says:

    gud morning sir,
    my uncle has decided to sell his home and he has income tax file for my mother which i dont know. now he is telling my mother to sign all the returns from 2001 to 2012 in which he has shown gifts received from my mother of rupees 100000/- per year for three alternate years. so should my mother sign the papers or not. please reply as soon as possible on my mail [email protected]

    Reply

  14. A.Srinivasan Says:

    Dear Sir

    Please let me know under what circumstances I can gift cash to my wife? What will be the maximum limit for cash gift by me to my wife?

    Since my wife is not presently filing tax returns (she is house wife), should she file returns showing such cash gift?

    Is gifting to wife through cheque a better option than gifting in cash? If paid via cheque how to declare that as gift?

    Pl clarify the above doubts

    Thanks
    Srinivasan

    Reply

  15. P Ch Says:

    Q1. If I gift my wife a lumpsome amount of Rs. 10,00,000.00 and she earns some interest, what will be tax liability and on whom?

    Q2. If my daughter gifts Rs 10,000,000.00 to her mother due to love and affection, and I replenish her later, and my wife earns interest, what is tax implication and on whom? All activities in the same financial year.

    Regards,
    P.Ch

    Reply

  16. bhaskar sharma Says:

    Whether their is any exemptions to the person who has given the gift to his son or any relatives.,,,,

    please tell me as earliar as possible

    thanks

    Reply

  17. Mukesh Mody Says:

    If i give gift of Rs. 10 lacs to my wife, after that my wife invest that amount and after 8 months she got profit from that investment, then who’s tax liability ? my wife’s income is only 50000.

    Reply

  18. saravanan Says:

    Dear Sir,
    I am a female tax payer. if i give a gift of rs.30 lakhs to my minor daughter.It is possible or not. kindly explain.

    Reply

  19. Adil Taksali Says:

    I wanted to gift 1.0 lac to my elder sister,
    Can i claim income tax benefits by reducing this amount of 1.0 lac from my income.

    Reply

  20. Kirit Says:

    Dear sir,
    My query is -

    1) grandfather makes a gift to his minor grandson by cheque, and minor generates intrest income out of that money. Is this income is clubbed to father/Mother’s income or grandfather’s income?

    Please help
    Thanks !

    Reply

  21. tribhuwan bali Says:

    I want to know the maximum amount which can be sent as gift fromus to his sister in india.
    Kindly send mail.

    Reply

    • N Jain Says:

      Dear Sir

      I want to know, what would be the treatment of funds given by the father to his son as a gift to grand daughter where no gift deed has been made and grandfather has passed away.

      Further, what would be the treatment of funds given by the mother to his son as a gift to grand daughter from funds inherited by her (mother) after the death of her husband.

      Reply

  22. S Anand Kumar Says:

    I want to gift my niece(my sister’s daughter) my house (self acquired)whose guidance value is about 1.5 crores. I have no children and my wife will be a consenting witness on the gift deed.Is my niece exempt from paying tax on this gift My grateful thanks in advance

    Reply

  23. hegde Says:

    If i give gift of Rs.2 lacs to my wife 1 lac and daughter 1 lacs, then what is the implication of IT to me and what is the effect to wife and minor daughter?

    Reply

  24. /mahek Says:

    can a husband gift to his wife under income tax act? what r the advantages and disadvantages of it? what should be the limit of gift (money)?

    Reply

    • krishnas Says:

      Hello Mahek,

      Yes. Husband can gift to wife.There is no limit for that. note that, if you gift to your wife, any income arising out of that gift is your income. you have to pay the tax for it.

      Thanks,
      Krishna

      Reply

  25. g b singh Says:

    i have purchased a residential property in my name the value of which my son has paid from his NRO account direct to the housing society in instalments. plz advise what sort of documents should i get prepaired from my son to treat the entire amount as a gift to me from my son.

    Reply

  26. rakesh Says:

    i received 55000 as gift from my mother’s brother’s son who is an NRI.. is it tax exempt or taxable. kindly reply

    Reply

  27. Harish Says:

    Sir,
    You are doing a yeoman service for us individuals who are unable to weave through the web of tax rules and acts. Thank you. I have a situation:
    My father is a retired person. In year 2010, he gifted me Rs. 15 lakhs towards purchasing a house. Query :
    (i) Am i liable to pay income tax on the amount gifted to me?
    (ii) Is there any documentation to be done by him & me to certify it as a gift?
    (iii) Is it better for me / my father to treat this gift as an interest free loan for the purpose of income tax exemption
    in anticipation of your reply

    Reply

  28. Anirudh S Says:

    I have a question.
    My annual income is 5 Lacs & I want to gift 50,000 to my mother.
    So wanted to know will 50,000 be exempted from tax for me, which means I have pay tax only on 4.5 Lacs.

    If not please tell me hoe much I can gift exempt from tax.

    Reply

  29. ramesh Says:

    if son (nri) gives 2 crores to father as gift. is there any tax liabilities?

    Reply

  30. Cucko Says:

    NOC given to another heir in consideration of Rs5 crores cash into my bank account in lieu of my share in a residential property on demise of our father intestate. Would this Rs5 crores be taxable in my hands under the Income Tax Act of India? Should I get a gift deed from the other heir? How would this gift deed be drafted?

    Reply

  31. kamal setia Says:

    Dear Sir,

    I wish to gift Rs.5,00,000/= to my wife by means of a fixd deposit in her name by transferring the amount from a Savings account in our Joint name i.e. in my and my wife’s name.

    My wife is a housewife and she does not file return because she does not have any income. The amount of interest on the aforesaid gift amount will also not be much that may attract tax. May I do so. Or the interest on the above fixed deposit will be clubbed in my income.

    Reply

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