A brief explanation of India’s gift tax laws and the maximum amount you may offer your family without fear of taxation.
Most individuals are concerned about the tax collector coming up at their door while they are transferring money or property to their relatives. In actuality, Indian tax law makes it quite evident when gifts are subject to taxes and when they are not. You may transfer money to your parents or children without incurring additional taxes if you understand the fundamentals.
Giving to close relatives is tax-free
First, keep in mind that donations to your immediate family, including your spouse, parents, siblings, and children, are completely excluded from income tax, regardless of their size. Therefore, there is no gift tax at all whether you give your mother money for a new automobile or send ₹10 lakh to your daughter for further education. Gifts from “relatives,” such as parents, siblings, children, and in-laws, are expressly excluded under the Income Tax Act.
When presents are subject to taxes
Giving or receiving from those who are not on this “relative” list is where the problems begin. For example, you may give ₹2 lakh to a friend or cousin who does not fit the criteria of a relative. In such scenario, the whole sum becomes taxable in the recipient’s hands if the value of the gifts exceeds ₹50,000 throughout a fiscal year. For instance, if a buddy gives you ₹1 lakh, you will need to report it as “Income from Other Sources.”
Particular guidelines for certain situations
There are a few exceptions. Regardless of who delivers the gift or its value, gifts received on the occasion of marriage are completely exempt. Gifts obtained by inheritance or under a will are also exempt from taxes. However, if they come from non-relatives and exceed the ₹50,000 threshold, birthday presents, housewarming presents, or informal transfers are not eligible for the same exemption.
Why it is still important for planning
Despite the fact that gifts to parents or children are tax-free, pooled income is an additional consideration. The income from a gift you provide to your spouse or a minor child—for example, interest on an FD—may be combined with your own income and subject to slab rate taxation. This restriction is not applicable to parents or adult children. To minimize total family taxes, financial planners often advise giving presents to parents who are in lower tax categories.
Frequently Asked Questions
1. Can I give my kid an infinite amount of money without having to pay taxes?
Gifts given to children are, in fact, completely exempt. However, keep in mind that any earnings from the gift will be added to your income if your kid is underage.
Q2. Can parents get more than one gift?
No, there is not a cap. present tax is not a concern when giving your parents a present of any size.
Q3. What happens if I give my buddy cash?
Should the sum from non-family members surpass ₹50,000 throughout a fiscal year, the whole sum is subject to taxation for the friend.