Gifts received from Friends, Relatives or from NRIs could be Exempt from Income Tax ! How ?


It is very common for, people to receive gifts from friends and relatives. In some cases, gifts are also received from NRIs. Let us consider the latest provisions of the Income Tax Act, 1961 regarding gifts, and analyse how individuals can plan to have complete exemption from income tax in respect of the gifts they are likely to receive during the financial year. The sections mentioned below refer to the Income Tax Act, 1961.

Only Individuals and HUFs

Under the provisions of Section 56(2)(vi) certain gifts are liable to income tax as “income from other sources”. However, this provision is applicable only for individuals and Hindu Undivided Families (HUFs). Thus, if gift is received by any Trust or A.O.P., then it is not liable to income tax as “income from other sources”. The provision of taxation’ of gifts became applicable in respect of gifts received on or after 1.9.2004 and before 1.4.2006 if the gift money exceeded ` 25,000. From 1.4.2006, this amount has now been increased to ` 50,000 so that cash gifts or gifts by cheque or bank draft from non-relatives and from non-exempted categories can be fully exempt from income tax up to ` 50,000 in aggregate in one financial year. As per the Finance (No. 2) Act, 2009 even the gifts in kind like immovable property, jewellery, shares, etc. received in excess of ` 50,000 from non-relatives are subject to tax as income of the tax payer. From 1-6-2010 even “Bullion” received from non-relatives is taxable as income. From 1-6-2010 even for firms and companies the shares, etc if received without proper market value would be taxed.

Gifts from Relatives are Tax-Exempt

Jmportanty, the provisions of the aforesaid Section 56(2)(vi) applicable to the taxation of gifts in excess of ` 50,000 in a financial year in the aggregate are applicable for gifts received from non-relatives. Thus, any gift from relatives of any amount during the financial year is completely exempt from tax. Therefore, it’s crucial to know the meaning of the expression “relative” for this purpose. The Explanation to Section 56(2)(vi) provides that the expression “relative” means:

(i) Spouse of the individual;

(ii) Brother or sister of the individual;

(iii) Brother or sister of the spouse of the individual;

(iv) Brother or sister of either of the parents of the individual;

(v) Any lineal ascendant or descendant of the individual;

(vi) Any lineal ascendant or descendant of the spouse of the individual; and

(vii)Spouse of the person referred to in clauses (ii) to (vi).

Thus, a gift received by an individual from his spouse, or from his brother or sister, or from the brother or sister of the spouse, parents, or from any lineal ascendant or descendant of himself or his spouse would normally be fully tax-exempt. Similarly, any gifts received from the spouses of any of these persons would also be completely exempt from income tax.

For example, if Mr. A receives a gift of
` 2 lakh in cash from his maternal uncle, that is, his mother’s brother, it would be exempt since the maternal uncle would be brother of the parent of the individual concerned and would come within clause (iv) of the aforesaid Explanation.

Hence, whenever you receive any gifts from relatives you must carefully apply the test whether the person concerned falls within one of the seven categories of “relatives” or not. If a person who makes a gift does not fall within any of the above categories, then he would be considered as a non-relative and gifts from such people would be exempt only up to the extent of
` 50,000 in a financial year. It may be noted that since a Hindu Undivided Family can’t have relative, any gifts received by it in excess of ` 50,000 in a year would be liable to full income tax.

Exemption for 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 at all. There is no monetary limit attached to this exemption, which is provided by the proviso to Section 56(2)(vi). However, it is not made clear by this provision whether the gifts should have been on the exact date of marriage, or a few days before or later. Normally, it should suffice if the gift is given just on the occasion of the individual’s marriage, which means either on the day of the marriage itself or a day or two before or after. Practical common sense view would prevail in these cases.

Exempted Gifts from Other Persons

Besides gifts received from a relative or on the occasion of an individual’s marriage, the following are the other gifts which are completely exempt from tax as provided in the proviso to Section 56(2)(vi) of the I.T. Act:

1. Gift received under a Will or by way of inheritance;

2. Gift in contemplation of death of the donor;

3. Gift from any local authority;

4. 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); and

5. Gift from any trust or institution, which is registered as a public charitable trust or institution under Section 1 2AA.

Thus, scholarships, stipends or charities received from a charitable institution would be completely exempt from income tax in the hands of the recipients without any limit provided the trust or institution giving the charity is registered under Section 12AA. Likewise, all gifts under a Will, and all amounts received on the death of a person as a part of the inheritance are fully exempt from income tax.

Gifts in Kind are now not Exempt

Here is something which should be very carefully noted that the provisions relating to taxation of gifts from non-relatives and non-specified persons in excess of ` 50,000 would be liable to income tax only when the gift is a sum of money, whether in cash, by way of cheque or a bank draft. However, the Finance (No. 2) Act, 2009 now provides that gift in kind either of immovable property, or jewellery, or shares, paintings, etc. in excess of ` 50,000 in a year from non-relatives would be added to your income. From 1-6-2010 even the gift in the form of “Bullion” would be taxable.

A proper knowledge and understanding of the provisions of Section 56(2)(vi) relating to gifts is very helpful in order to get full tax exemption in respect of gifts received during a financial year.


As per the Finance Act, 2012 the gifts received by a Hindu Undivided Family from its members would be exempted from Income tax.