Are Gifts from Parents Taxable? A Detailed Guide

According to the provisions outlined in Section 56(2)(x) of the Income Tax Act, 1961, any monetary gift received from a relative, including one’s father, is exempt from taxation.

Income tax is classified as a direct tax, meaning it is imposed directly on an individual’s income or wealth. The individual responsible for paying this tax to the government cannot transfer the financial burden to another party, indicating that the tax liability remains with the taxpayer.

Below are some frequently asked questions concerning income tax rules and regulations.

Will I be liable for taxes if my parents give me a gift of Rs 20 lakh?

A monetary gift received from parents is not subject to income tax as per Section 56(2) of the Income Tax Act. Consequently, you will not incur any tax obligations on the Rs 20 lakh gift. Although it is not a requirement, it is prudent to create a gift deed that specifies the amount, the relationship between the parties, and the irrevocable nature of the gift. Receiving the funds via bank transfer provides a transparent financial record. While income tax returns do not require supporting documents, it is advisable to retain the gift deed for your personal records for any future needs.

According to the provisions outlined in Section 56(2)(x) of the Income Tax Act, 1961, any monetary gift received from a relative, including one’s father, is exempt from taxation. Therefore, you will not incur any tax liability on this amount, and your father will also not be subject to tax consequences for providing this gift.

 What constitutes a Gift under the Income Tax Act

Under the Income Tax Act, a gift is defined as any money or movable or immovable property received by an individual from another individual or organization without any corresponding payment.

From a taxation perspective, gifts can be categorized into the following types:

Monetary gifts, which include cash, cheques, drafts, bank transfers, and similar forms of financial transactions.

Movable property, encompassing items such as shares, bonds, jewelry, sculptures, and paintings. This category also covers movable assets obtained at a price lower than their fair market value.

Immovable property, which refers to real estate such as buildings, land, and both residential and commercial properties. This includes properties acquired for less than their stamp duty value.

My father intends to contribute a significant amount to a community hospital. However, he wishes to first transfer this sum to me, after which I would make the donation in my name. Is it possible for him to gift the money to me without incurring any tax consequences for either of us? 

Additionally, can I receive a tax exemption if the donation to the hospital meets the criteria for such an exemption?

In terms of tax deductions for charitable contributions, Section 80G of the Act permits deductions for donations made to qualifying charitable organizations that are registered under this section. If the community hospital meets these criteria, you will be eligible to claim a deduction for your donation. The deduction percentage will vary based on the classification of the recipient organization. Certain government or national relief funds are eligible for a 100% deduction without any cap, while other qualifying institutions may allow for a 50% deduction, limited to 10% of the adjusted total income.

To qualify for the deduction, donations must be made through specified payment methods. Contributions exceeding Rs 2,000 must be conducted via non-cash means, such as checks, bank transfers, or digital payments, as cash donations above this limit are not eligible for deductions. Additionally, it is important to note that deductions under Section 80G are applicable only under the old tax regime, not the new one. Therefore, while you can claim a deduction for your donation if the hospital is registered under Section 80G, it is essential to adhere to the required payment methods and select the appropriate tax regime to benefit from this provision. The tax department may review this, so consulting a financial advisor before making a donation is recommended.