Got a big gift recently? Here's how it could trigger a tax surprise

Business Standard

19-05-2025

Received a generous gift recently, like a flat from a relative or a big cash transfer from a friend? This windfall might land you in trouble with the taxman if you're not careful. Here's what you need to know about how gifts are taxed under Indian income tax laws.
What kinds of gifts are taxable?
'Under Section 56(2)(x) of the Income Tax Act, gifts received without consideration—like cash, property, or even virtual digital assets—can become taxable if the total value exceeds Rs 50,000 in a financial year,' says Naveen Wadhwa, vice-president, Taxmann.
This includes:
· Cash or bank transfers received as gifts.
· Immovable property (like land or a house) received for free or at a much lower price.
· Movable assets, such as jewellery, shares, art, or crypto, if received free or at a discount.
In such cases, Wadhwa adds, the value must be reported as "Income from Other Sources" in your ITR for the relevant year.
Are there any exemptions?
Yes, and some are quite generous.
Wadhwa explains that gifts from 'relatives' are fully exempt from tax. But the law has a specific definition for relatives: it includes your spouse, siblings, parents, children, and their spouses—but not friends or distant cousins.
Wadhwa further clarifies: 'Gifts received on your marriage are also completely tax-free—regardless of amount. Inheritance, gifts received under a will, or in contemplation of death are also exempt.'
That said, Wadhwa suggests it's a good practice to disclose even exempt gifts in the "Exempt Income" (Schedule EI) section of your ITR to avoid future scrutiny.
When does a gift become taxable?
Kunal Savani, partner at Cyril Amarchand Mangaldas, explains: 'Once the total value of gifts received without consideration exceeds Rs 50,000, the full amount—not just the excess—becomes taxable under 'Income from Other Sources'.'
He cautions that this applies not just to cash gifts, but also to discounted purchases—say, if you bought a house worth Rs 70 lakh from a non-relative for Rs 10 lakh, the Rs 60 lakh difference may be taxed.
Savani also reminds taxpayers to check if the donor qualifies as a "relative" per the Income Tax Act before assuming tax-free status.
Practical ITR tips for gift receivers
'Keep detailed records of every gift you receive—especially high-value ones,' advises Ritika Nayyar, partner at Singhania & Co. This includes:
· Nature and value of the gift
· Date of receipt
· Donor's name and relationship
· Supporting documents like gift deeds or bank transfers
'If you're receiving an immovable property as a gift, the stamp duty value becomes key to determining taxability,' she adds.
Even if a gift is exempt, Nayyar recommends voluntary disclosure under Schedule EI of your ITR, just to be on the safe side.
Can you get into trouble for not declaring gifts?
Yes, and the consequences can be serious.
'With the I-T department using AI-powered analytics and reviewing AIS (Annual Information Statement), it's very easy for them to spot large deposits or unusual transactions,' warns CA Deepesh Chheda, partner at Dhruva Advisors LLP.
'If you forget to declare a taxable gift, or claim an incorrect exemption, it could result in a tax notice, penalties, and interest,' he adds.
Keep it transparent
All four experts strongly advise erring on the side of caution. If you're salaried or middle-income and received any gifts during the year—be it cash, property, or assets—check if they fall under taxable categories and file your ITR accordingly.
'The key is clarity and documentation—know the rules, assess fair market value correctly, and maintain all gift-related records,' Wadhwa said.