Gift Tax: Do You Have to Pay Tax on Money Received from a Father, Brother, or Sister? Know the Income Tax Rules

Gift Tax: In our lives, we often need financial help or gifts from close relatives like our father, brother, or sister. Does the Income Tax Department impose any tax on such gifts? This question comes to many people’s minds. According to the Income Tax Act, such gifts can be tax-free in certain relationships and situations, while in some cases, tax may be applicable. Let’s find out more about this in detail.

Tax on Gifts Received from a Father

According to Section 56(2)(x) of the Income Tax Act, 1961, any amount of money or property received as a gift from a father is tax-free. This means that if a father gives money to his son or daughter to buy a property, no tax will be levied on it. This is a significant advantage that the law provides for close relatives.

However, if a father gifts money to his daughter-in-law, the matter is slightly different. In this case, the ‘clubbing of income’ rule applies. This means that if the daughter-in-law earns any income from the gifted money, that income will be added to the father-in-law’s income, and he will have to pay tax on that income. This rule has been created to prevent tax evasion.

Gift Transactions Between Siblings

The relationship between a brother and sister is included in the definition of ‘relative’ under the Income Tax Act. Therefore, if a brother gifts money or any other property to his sister, or a sister gifts to her brother, no tax will be applicable on it. This rule makes financial transactions between siblings much easier.

But it is important to remember one thing here as well. If the gifted money is invested somewhere and generates any income, that income will be taxable. In this case, the ‘clubbing of income’ rule may also apply, and that income could be added to the gift-giver’s income and become taxable.

Who is Considered a ‘Relative’?

According to the Income Tax Act, the following persons are considered ‘relatives’, and gifts received from them are completely tax-free:

• Spouse
• Brother or sister
• Brother or sister of the spouse
• Brother or sister of either of the parents
• Any lineal ascendant or descendant of the individual or their spouse
• Spouse of the persons mentioned above

When is Tax Applicable on Gifts?

If a person receives a gift from someone who is not defined as a ‘relative’, and the total value of that gift exceeds ₹50,000 in a financial year, then the entire gift amount will be taxed as ‘Income from Other Sources’.

Therefore, it is very important to know these income tax rules before accepting gifts from close relatives. This can save you from any kind of legal complications in the future and help you plan your finances better.