To put it simply, under the Income Tax Act, 1961, Section 56(2)(x) covers such cases; it states that such gifts from specified relatives are completely exempt from tax, irrespective of the amount involved.
CA (Dr.) Suresh Surana, a Mumbai-based Chartered Accountant, says, “Section 56(2)(x) provides that if an individual receives any sum of money without consideration exceeding ₹50,000, it is taxable as income. However, gifts from relatives, including parents, are exempt from tax, irrespective of the amount or mode of receipt. Therefore, a digital transfer of ₹10 lakh by your father is not taxable. Yet, any income earned from this gifted sum, like interest on a fixed deposit created using it, remains taxable.”
Furthermore, it is important to note that the last date of filing has now also been extended to September 15, 2025. Therefore, as you go ahead with filing your income tax for FY 2024-25, you should keep these important points in mind.
A gift from parents is fully exempt
The legal provision, hence, classifies gifts from direct relatives such as parents, siblings, spouse, and other lineal descendants as non-taxable. This is regardless of the amount or mode of transfer. This relief, therefore, covers digital banking transactions as well as physical cash gifts or cheques.
Significance of documentation safeguards
Though, as per the legal provisions, there is no mandatory requirement to create a gift deed for such transfers, i.e., a digital transfer of funds between a father and son. Still, maintaining a proper financial track record is always the safest option. Taxpayers, hence, are advised to:
- Get a simple gift deed drafted. The draft should contain the amount, the relationship, the date of transfer, irrevocable nature of the gift.
- Keep bank statements, and transfer evidence clearly showing the transfer.
- Retain the gift deed for personal record keeping. It will come in handy in case of tax inquiries and filing returns for FY 2024-25.
Implications for income from the gifted amount
Given that the original gift is exempt from any income tax. Still, if income is generated from the gifted amount, such as interest, dividends, or capital gains, all such gains must be reported. These gains are taxable as per normal income tax rules.
For example: ‘A’ gifts his son ‘B’ a large amount, which could be as big as ₹25 lakh or beyond, through a digital transfer in FY 2024-25. This amount is not taxable. But if B fixes this amount and earns interest, or invests this amount and earns dividends or capital gains through stocks. Then such gains are going to be taxed as per the provisions of the Income Tax Act.
Reporting and transparency
It is prudent to disclose exempt gifts from parents under “Exempt Income” (Schedule EI) in your income tax return for FY 2024-25 to ensure transparency and avoid any future scrutiny.
Key points for individual taxpayers to assist in tax-filing in FY 2024-25:
- No tax is payable on a gift from your parents.
- A gift deed is advisable, but not mandatory.
- Income earned from the gifted money is taxable.
- Exempt gifts should still be declared on your tax return for clarity.
Following these guidelines will help ensure smooth handling of such large gifts and compliance with tax laws in the country.
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Disclaimer: This article provides general information on tax laws and is not a substitute for professional tax advice. Taxpayers should consult a qualified tax advisor or the Income Tax Department for guidance specific to their situations.
