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Gifts from relatives are always tax-free
October, 08th 2018

It is common for relatives to exchange or share gifts— from small gifts in cash to immovable property like land—during important occasions. But, what about the taxability rules for gifts shared when there is no occasion? The Indore tax tribunal recently had the scope to analyse and interpret the law relating to gifts received from relatives in the case of Geeta Dubey vs Income-Tax Officer.

Dubey received a gift of Rs 50,000 from her father and a gift of Rs 50,000 from her sister-inlaw. This receipt was examined by the assessing officer. During the course of assessment proceedings, Dubey sufficiently established the identity of both the donors and the fact that these were received through proper banking channels was also proved. Further, the officer also accepted the fact that since these were receipts from Dubey’s father and sister-in-law, they qualified as “relatives” for the purpose of Section 56 of the Income-Tax Act, 1961. The Act states that gifts received from relatives are exempt from income tax. However, the assessing officer contended that the gifts would be subject to income tax since the occasion for which the gift was received could not be quoted by Dubey. This contention was upheld by the Commissioner of Income-Tax (Appeals) too.

The issue then came up for consideration before the tribunal. Interpreting the provisions of Section 56, the tribunal stated that the section provides for a cap of Rs 50,000 on gifts received from non-relatives and if gifts exceeded the amount, the same would be taxable under “income from other sources.” But there was no such cap on gifts received from a relative. There was also no mention about the occasion to be a necessary condition for receiving any sum from a relative. The tribunal ruled that since the identity of the donors had been established and as they qualified as relatives for the taxpayer to claim an exemption, the need to provide an explanation on the occasion for which gift was received was not mandatory. With this observation, the tribunal passed the order in favour of Dubey.

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