7 situations when monetary gifts received by an individual do not get taxed
The Income Tax Department has recently released an updated brochure explaining the situations when monetary gifts received by individuals or Hindu Undivided Family (HUFs) will not be charged to income tax. Gifts received from relatives are usually subject to income tax but in case of monetary gifts, there are seven situations where gifts received from relatives are not taxed.
Tax treatment of gifts and property received without adequate consideration
Chartered Accountant (Dr.) Suresh Surana explains Section 56(2)(x) of the Income Tax Act, 1961 is related to tax treatment of gifts received by an individual or HUF.
This section deals with income from gifts and property received without adequate consideration. Several categories of gifts are exempt from taxation, including gifts received from relatives (such as spouses, siblings, parents, and lineal ascendants/descendants etc.), gifts received on marriage, those received under a will or in contemplation of death etc.
Surana explains the tax implications in the hands of Transferee (recipient):
Taxable Transferor of Gifts
As per Section 56(2)(x) of the Income Tax Act, 1961 if an individual receives an immovable property without consideration in any financial year commencing on or after April 1, 2017, and the stamp duty value of such property exceeds Rs. 50,000, the stamp duty value will be treated as taxable income under the head “Income from Other Sources.”
However, this provision does not apply if the gift is received from a relative. Surana says that for the purpose of this section, “relative” has been widely defined and includes husband, wife, brother, sister, their spouses, any lineal ascendant or descendant of the individual, etc. Therefore, gifts from these specified relatives are exempt from taxation under Section 56(2)(x).
Non-Taxable Transfer of Gifts
Surana says that if any individual receives, in any financial year commencing on or after April 1, 2017, from any person or persons, any immovable property, where the consideration is less than the stamp duty value by more than the prescribed threshold i.e. the stamp duty value of such property exceeds the consideration by 10% as well as such difference exceeds Rs. 50,000 shall be considered as taxable income under the head “Income from Other Sources”.
Who is a relative under Income Tax law?
According to the income tax department brochure, money received from relatives are not taxable. Here’s who falls under the definition of relatives:
i. In case of an Individual
- 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 persons referred to in (b) to (f).
ii. In case of HUF, any member thereof
Gift transactions which are not subject to income tax
Here’s the list of nine transactions:
- Money received on the occasion of the marriage of the individual
- Money received under will/ by way of inheritance.
- Money received in contemplation of death of the payer or donor.
- Money received from a local authority [as defined in Explanation to Section 10(20) of the Income-tax Act.
- Money received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C). [w.e.f. AY 2023-24, this exemption is not available if a sum of money is received by a specified person referred to in section 13(3)]
- Money received from or by a trust or institution registered under Section 12AA or Section 12AB [w.e.f. AY 2023-24, this exemption is not available if a sum of money is received by a specified person referred to in Section 13(3)].
- Money received as a consequence of demerger or amalgamation of a company or business reorganization of a co-operative bank under section 47.
- Money received by any fund /trust/university/other educational institutions/hospital/other medical institution referred to in section 10(23C)(iv)/(v)/(vi)/(via)(Applicable if Property is received on or after 1st April 2017)
- Money received from an individual by a trust created or established solely for the benefit of relatives of the individual.
Marriage of the individual is the only occasion when monetary gift received by him will not be charged to tax
A gift received on the occasion of marriage of the individual is not charged to tax. Apart from marriage there is no other occasion when monetary gift received by an individual is not charged to tax. Hence, monetary gifts received on occasions like birthday, anniversary, etc. will be charged to tax.
Taxability of monetary gifts received from friends
Gifts received from relatives are not charged to tax (the meaning of “relative” has been discussed earlier). A friend is not a “relative” as defined in the above list and hence, gifts received from friends will be charged to tax (if other criteria of taxing gifts are satisfied).
How to show gifts in ITR for AY 2025-26?
Surana says that for the Assessment Year 2025–26 (Financial Year 2024–25), gifts received must be categorized as either taxable or exempt for proper reporting in the Income Tax Return (ITR).
Taxable Gifts
According to Surana, in the Income-tax Return (ITR), taxable gifts would be disclosed in Schedule OS (Income from Other Sources) under the field “Income of the nature referred to in section 56(2)(x) which is chargeable to tax” The value to be reported will be the fair market value or stamp duty value, as the case may be, of the taxable gift. Once disclosed in Schedule OS, the amount is automatically considered in Part B – TI (Computation of Total Income) for determining the total taxable income.
Non-Taxable Gifts
Surana says that non-taxable gifts are required to be disclosed in Schedule EI (Exempt Income) “Details of Exempt Income (Income not to be included in Total Income or not chargeable to tax)”. The reporting should be made under the field “Other exempt income (including exempt income of minor child)” with an appropriate description such as “Gift received from relative – exempt under Section 56(2)(x).”
Monetary gifts received from abroad
If the aggregate value of monetary gift received during the year by an individual or HUF exceeds Rs 50,000 and the gifts are not covered under the exceptions discussed in earlier part, then gifts whether received from India or abroad will be charged to tax.
Once the aggregate value of gifts received during the year exceeds Rs. 50,000 then all gifts are charged to tax
Sum of money received without consideration by an individual or HUF is chargeable to tax if the aggregate value of such sum received during the year exceeds Rs. 50,000. The important point to be noted in this regard is the “aggregate value of such sum received during the year”. The taxability of the gift is determined on the basis of the aggregate value of gift received during the year and not on the basis of individual gift.
Hence, if the aggregate value of gifts received during the year exceeds Rs 50,000, then the total value of all such gifts received during the year will be charged to tax (i.e. the total gift amount and not the amount in excess of Rs 50,000).
Illustration
For example, Mr Kumar received following gifts during the financial year 2025-26:
- Rs 1,84,000 from his friend residing in Canada.
- Rs 25,200 from his elder brother residing in Delhi.
- Rs 84,000 from his friend residing in Delhi (received on the occasion of birthday of Mr. Kumar).
Sum of money received without consideration (i.e. gift) by an Individual or a HUF from any person other than relative (meaning of relative is already discussed earlier) and otherwise than on prescribed occasions (as discussed earlier) is charged to tax, if the aggregate amount of such gift received during the year exceeds Rs. 50,000. Considering these provisions, the tax treatment of gifts in the hands of Mr. Kumar will be as follows:
Rs 1,84,000 received from his friend will be fully taxed because a friend is not covered in the definition of „relative‟.
- Rs 25,200 received from elder brother will not be charged to tax because elder brother is covered in the definition of “relative”.
- Birthday is not covered in the list of prescribed occasions on which gift is not charged to tax. So, Rs 84,000 received on the occasion of birthday will be fully taxed.
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