₹25 Lakh Gift from Parents: Do I Need to Pay Tax?

Gifting money or property to family members is a common practice in India, but many individuals are unsure about the tax implications of such transactions. If you receive a monetary gift of ₹25 lakh from your parents, do you have to pay tax on it? Let’s break down the rules under the Income Tax Act.

Is a Gift from Parents Taxable?

Under Section 56(2)(x) of the Income Tax Act, any sum of money or property received as a gift is subject to taxation unless it falls under specific exemptions. Fortunately, gifts received from relatives—including parents—are completely tax-free.

Thus, if your parents gift you ₹25 lakh, you will not have to pay any tax on it. However, it is advisable to maintain proper documentation to avoid any future tax scrutiny.

Importance of a Gift Deed

While it is not mandatory to draft a gift deed, it is a good practice to create one. A gift deed should include:

• The amount gifted
• The relationship between the donor (parent) and the recipient (you)
• A declaration that the gift is given voluntarily and is irrevocable
• The mode of transfer (preferably bank transfer for a clear financial trail)

Maintaining a gift deed can help in case of any future queries from the tax department.

Who Qualifies as a ‘Relative’ for Tax-Free Gifts?

Section 56(2)(x) defines relatives whose gifts are exempt from tax. For an individual, these include:

• Spouse
• Siblings
• Siblings of the spouse
• Siblings of either parent
• Lineal ascendants and descendants (grandparents, children, grandchildren, etc.)
• Lineal ascendants and descendants of the spouse
• Spouses of all the above-mentioned relatives
• Hindu Undivided Family (HUF) members

However, friends are not considered relatives. If you receive a gift from a friend exceeding ₹50,000, it will be treated as taxable income under the head ‘Income from Other Sources’.

Other Scenarios Where Gifts Are Exempt from Tax

Apart from gifts received from parents and relatives, certain other categories of gifts are also exempt from taxation:

1. Gifts Received During Marriage
   • Any gift received by an individual on their wedding day, regardless of the amount or source, is completely tax-free.
2. Inheritance and Will-Based Gifts
   • Any assets received through a will or inheritance are not subject to tax.
3. Gifts Received in Contemplation of Death
   • Gifts given by a terminally ill donor anticipating death in the near future are also exempt from taxation.
4. Movable Personal Effects
   • The sale of personal effects such as vehicles, furniture, and fixtures is not taxable. However, shares, securities, jewellery, artwork, and bullion are taxable unless exempted under other provisions.

Taxable Gifts: When Do You Have to Pay Tax?

Although gifts from parents and certain other categories are tax-free, there are situations where gift tax is applicable:

• Gifts received from non-relatives exceeding ₹50,000 in a financial year are fully taxable.
• Gifts received on birthdays or anniversaries from non-relatives do not qualify for exemptions.
• Gifts in the form of shares, securities, jewellery, and other specified assets from non-relatives will be subject to tax.

Conclusion

If your parents gift you ₹25 lakh, you will not have to pay any tax on it, as per Section 56(2)(x). However, to ensure smooth documentation and avoid future tax queries, it is recommended to maintain a gift deed and ensure the transaction happens via a bank transfer. Understanding the tax implications of gifts can help you plan your finances better and stay compliant with income tax laws.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.