Got a Gift? You Might Owe Tax — Here's What You Should Know

Picture this: It's your birthday, and your best friend has transferred ₹70,000 to your bank account as a surprise gift.

You smile, thank them, and plan a weekend getaway.

But what if I told you that this "free" gift may silently be costing you — on your next tax return?

Gifts are wonderful. But when they start crossing certain thresholds or come from the “wrong” person, they become taxable under Indian law — specifically under Section 56(2)(x) of the Income Tax Act.

So, let’s peel back the wrapping paper and dive into the not-so-obvious truth of how gifts can affect your tax returns.

First, What Is Considered a Gift for Tax Purposes?

The Income Tax Department is very broad in its definition. For them, a “gift” isn’t just cash in an envelope — it includes:

• Money – cash, cheque, online transfer, UPI
• Movable Property – gold, cars, watches, shares, artwork
• Immovable Property – house, land, apartment
• Anything given without adequate payment

If it's valuable and freely given, it counts.

When Does a Gift Become Taxable?

Here’s where it gets real. If the aggregate value of gifts received from non-relatives in a financial year exceeds ₹50,000, the entire amount becomes taxable as “Income from Other Sources.”

Myth vs Fact

Who Counts as a “Relative” (So Your Gift Stays Tax-Free)?

The law doesn’t go by what we call people — it goes by who they officially define as your relative.

✅ Relatives Under Income Tax Act

• Spouse
• Siblings (you and spouse’s)
• Parents and grandparents
• Children and grandchildren
• In-laws, son/daughter-in-law
• Spouse of any of the above

❌ Friends, cousins, boyfriends/girlfriends, mentors, and colleagues are not relatives — no matter how close you are.

Real-Life Gifting Scenarios: Taxable or Not?

Let’s walk through some juicy real-world examples (because examples > rules):

Birthday Gift from a Bestie

₹75,000 was transferred to your account by a close friend.

❌ Taxable — because:

Friend = not a relative

₹50K = whole ₹75K becomes taxable

Marriage Gift Bonanza

You receive:

• ₹1.5L from uncle
• ₹50K from colleague
• ₹5L from parents

✅ Not Taxable — because:

A gift received on your marriage is fully exempt regardless of the amount

(But only for the bride/groom — not their siblings or parents!)

Gift of Property from Cousin

You get a plot of land worth ₹8L from your cousin.

❌ Taxable — because:

• Cousin = not a “relative”
• Value > ₹50K
• Full ₹8L gets taxed as income

What If You Receive Property or Shares?

Not all gifts are in cash, and here’s how the tax works:

Immovable Property

If received free of cost:

→ Entire stamp duty value taxable if > ₹50K

If bought at a deep discount:

→ If price paid < stamp duty value by > ₹50K or 10%, difference is taxable

Shares & Securities

• If unlisted → FMV valuation is needed
• If listed → Based on market price
• Gifted shares = taxable if from non-relative and value > ₹50K

Common Mistakes People Make With Gift Tax

• Receiving multiple small gifts that cross ₹50K in total
• Not keeping documentation for exempt gifts (like from relatives)
• Assuming “friend” or “uncle” means tax-free without checking the definition
• Not declaring gifted property or expensive assets in ITR

How do you report gift income in your tax return?

First things first: Is the gift taxable or exempt?

Before you report it, you need to identify the taxability of the gift.

• Exempt gifts (from relatives, on marriage, via will/inheritance, etc.): Not taxable but can be voluntarily disclosed.
• Taxable gifts (total value > ₹50,000 from non-relatives): Have to be shown as "Income from Other Sources" and taxed according to your slab.

Step-by-Step: Reporting Taxable Gift Income in ITR

Suppose you've received a cash gift of ₹75,000 from a non-relative — here's how you report it:

Step 1. Identify the Right ITR Form

For most individuals:

• ITR-1 (Sahaj) – If income is up to ₹50L and includes salary, house property, and taxable gifts under “Other Sources.”
• ITR-2 or ITR-3 – If you have capital gains, business income, or multiple house properties.

Step 2. Navigate to the ‘Income from Other Sources’ Section

Go to: Schedule OS – “Income from Other Sources” in your ITR form (online or offline utility).

You’ll see options to declare:

• Interest income
• Family pension
• Winnings from lotteries, etc.
• And here’s where you add “Any Other Income.”

Step 3: Add the Gift Amount Under 'Any Other Income'

In ‘Other income’, enter the taxable gift amount.

Example:

• Description: "Cash gift received from non-relative"
• Amount: ₹75,000

Important: The entire amount becomes taxable once you cross ₹50,000 — you cannot claim only the excess over ₹50,000.

Step 4. Tax Will Be Calculated Based on Your Slab

• Gift income is added to your total income.
• It is taxed at normal slab rates — no special rate or exemption.
• So, if you fall in the 20% bracket, your ₹75,000 gift → ₹15,000 tax (plus cess).

Step 5: Maintain Proper Documentation

Even if you're not asked for proof at the time of filing, you should keep:

This becomes critical if your return is selected for scrutiny.

Should You Report For Exempt Gifts??

Technically, you’re not required to report exempt gifts.

But — many tax professionals recommend disclosing high-value exempt gifts (like ₹10L from a parent or ₹25L property gifted on marriage) in your return under the ‘Exempt Income’ section to:

• Show Transparency
• Preempt any future queries from the Income Tax Department
• Build a clean tax record (especially if your bank deposits increase suddenly)

How to Report Exempt Gift Income?

• Head to ‘Schedule EI (Exempt Income)’
• Add under “Any other exempt income.”
• Description: “Gift from mother (relative)”
• Amount: ₹10,00,000
• It's just for informational purposes and does not affect your tax liability.

Pro Tips to Gift Smart (and Stay Tax-Free)

• Use Relatives: Route large gifts through defined relatives to make them non-taxable.
• Use Occasions: Marriage is the safest occasion to accept non-relative gifts.
• Gift Deeds: Always document high-value gifts with a proper deed — signed by both parties.
• Split Gifts Over Years: If you plan to give or receive more than ₹50K, break it across financial years (if practical).
• Always Declare: Never hide — if it's taxable, show it. If it's exempt, disclose it voluntarily.

Don’t Let a Sweet Gift Turn Sour

Gifts - A symbol of love, appreciation, and tradition. It's an emotion. But have you imagined that symbol could even cost you?

But when the gift is sizable, the Income Tax Department also wants its share of the cake.

So, instead of getting surprised by the gifts from your loved ones, don’t just check your bank balance. Most importantly, the relationship, the timing, and the total value should be checked.

Because in India, even a generous gesture could be a taxable event in disguise.