Tax Implications of Gifts Received from Relatives and Friends

Gifting is a common practice in personal and cultural contexts, whether it’s during weddings, birthdays, festivals, or simply a gesture of goodwill. However, while receiving a gift a very common and frequent question running in the mind of taxpayers is the taxability of gifts.

This article explores the tax implications of gifts received by an individual as it is essential to understand when a gift becomes taxable and when it remains exempt—especially if received from friends or relatives.

What is considered a Gift under Income Tax Law—From the taxation point of view, gift can be classified as follows:

• Cash

• Movable property (jewelry, shares, securities, paintings, etc.)

• Immovable property (land, building)

Relevant Section— As per Section 56(2)(x) of the Income Tax Act, the fair market value of such gifts may be taxable under “Income from Other Sources,” unless specifically exempted.

Gifts from Relatives – Fully Exempt. Any cash, movable or immovable property received from relatives are not taxable, regardless of the amount.

Who Qualifies as a Relative? — According to the Income Tax Act, the following are considered "relatives":

a. Spouse of the individual;

b. Brother or sister of the individual;

c. Brother or sister of the spouse of the individual;

d. Brother or sister of either of the parents of the individual;

e. Any lineal ascendant or descendent of the individual;

f. Any lineal ascendant or descendent of the spouse of the individual;

g. Spouse of the persons referred to in (b) to (f).

Example:

If you receive Rs. 10 lakh from your father or brother, it is not taxable.

Gifts from Friends— Gifts from non-relatives, including friends, can be taxable, depending on the amount and nature of the gift.

Taxability of monetary gifts received from friends

Gifts from friends are not considered exempt, and their taxability depends on the total value received.

Friend is not a “relative” as defined above, and hence gifts received from friends will be charged to tax.

If the aggregate value of gifts received from non-relatives exceeds Rs. 50,000 in a financial year, then the entire amount becomes taxable (not just the amount exceeding Rs. 50,000).

Example:

Rs. 40,000 from a friend – Not taxable

Rs. 60,000 from a friend – Entire Rs. 60,000 is taxable

Note— Sum of money received without consideration by an individual 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 total value of all such gifts received during the year will be charged to tax (i.e. the total amount of gift and not the amount in excess of Rs. 50,000).

Taxation of Immovable Property received as gift from friend

Friend is not a relative as defined in the above list and hence, gift (immovable property) received from friends will be charged to tax (if criteria of taxing gift are satisfied)

If the following conditions are satisfied than immovable property received without consideration by an individual will be charged to tax:

1. Immovable property, being land or building or both, is received by an individual.

2. The immovable property is a capital asset within the meaning of section 2(14) for such an individual.

3. The stamp duty value of such immovable property received without consideration exceeds Rs. 50,000

Tax treatment of movable property received as gift from friend

Friend is not a relative as defined in the above list and hence, gift received from friends will be charged to tax (if certain criteria of taxing gift are satisfied)

If the following conditions are satisfied then value of prescribed movable property received by an individual will be charged to tax:

1) Prescribed movable property is received without consideration (i.e., received as gift).

2) The aggregate fair market value of such property received by the taxpayer during the year exceeds Rs. 50,000.

Prescribed movable property means shares/securities, jewellery, archaeological collections, drawings, paintings, sculptures or any work of art and bullion, being capital asset of the taxpayer and includes Virtual Digital Asset (VDA).

For Example: An assesse received Jewellery from his friend, the fair market value of the jewellery is Rs.84,000, it will be taxable.

Certain Additional Exemptions— Even if gifts (in terms of money, movable or immovable property) are received from non-relatives, they are exempt in the following cases:

• Gifts received on the occasion of the marriage of the individual.

• Gifts received under will/ by way of inheritance.

• Gifts received in contemplation of death of the payer or donor.

• Gifts received from an individual by a trust created or established solely for the benefit of relative of the individual.

• Gifts received from a local authority [as defined in Explanation to section 10(20) of the Income-tax Act].

• Gifts 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)]

Note— Marriage of the individual is the only occasion when monetary gift received by him will not be charged to tax. 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 gift received on occasions like birthday, anniversary, etc. will be charged to tax.

Taxability for the Donor

There is no tax liability on the person giving the gift, unless it’s treated as a form of unaccounted money or income under other sections.

Documentation for Gift Transactions— to avoid future scrutiny:

• Keep gift deeds, especially for large sums or properties.

• Maintain proof of bank transfers.

• For cash gifts, note the source and ensure it’s backed by the donor’s ITR or financial statements if queried.