ITR filing: Got a big gift or transfer? Here’s how to stay clear of tax trouble

In India, receiving a generous gift — be it a bundle of cash for your wedding, a plot of land from your parents, or financial support from a friend — can feel deeply personal. But in the eyes of the tax authorities, such gifts are more than just sentimental gestures—they’re potential sources of income, subject to tax scrutiny if not properly reported.

Take the case of a young entrepreneur who received Rs 9 lakh from close friends to help launch his start-up. He filed his income tax return using the simple ITR-1 form and didn’t disclose the amount. Months later, he received a notice under Section 68 for “unexplained credit.” Only after his CA refiled the return using ITR-2, included supporting gift deeds, and explained the source, was the case resolved, thankfully without penalties. But it was a close call.

So, what makes a gift taxable?

According to Section 56 of the Income Tax Act, 1961, gifts valued over ₹50,000 in a financial year can be treated as taxable income—unless they come from exempt sources such as specified relatives or are received on specific occasions like marriage. These rules apply not only to cash but also to immovable property, jewellery, shares, and even UPI or bank transfers.

CA Mayank W. explains:

“Many people assume that if a gift is given out of goodwill, it doesn’t need to be reported. But under Indian tax law, unless it’s exempt, it must be declared under ‘Income from Other Sources’ in ITR-2 or ITR-3—not ITR-1.”

Who can gift you tax-free?

Gifts from the following people are exempt from tax, regardless of amount:

Parents or children

Siblings (including step-siblings)

Spouse

Grandparents or grandchildren

In-laws

Or anyone, if given on the occasion of your marriage

However, if you receive gifts from friends, cousins, or business associates and the total value exceeds Rs 50,000 in a financial year, it becomes fully taxable.

How Different Gifts Are Treated:

Common mistakes to avoid

Ignoring online transfers or large deposits—can be flagged as unexplained income

Confusing inheritance with a gift—inherited assets are exempt but should be documented

Failing to document the gift—a simple gift deed on ₹10 stamp paper helps

Not reconciling with your AIS or Form 26AS—mismatches trigger auto-scrutiny

Gift tax exemptions

Certain gifts are exempt from tax under specific conditions. Gifts received by an individual from relatives are fully exempt, as are those received on the occasion of marriage. Inheritances or gifts under a will, or those received in contemplation of the donor’s death, are also tax-free. Additionally, gifts from local authorities, charitable institutions (as per Section 10(23C)), or trusts registered under Section 12A/12AA are not taxable. Members of a Hindu Undivided Family (HUF) receiving property during a full or partial partition are exempt, as are trusts created solely for the benefit of an individual’s relatives.

A practical tip

“Maintain a personal record of all significant gifts—include the giver’s name, date, mode of transfer, and purpose,” advises CA Mayank. “That simple habit can help you avoid costly notices later.”

Big-hearted gifts aren’t illegal—but they’re not invisible to the taxman either. However, due to frequent misuse and aggressive tax planning through gifting, high-value gifts often attract scrutiny from the Income Tax Department. It is strongly advised to maintain proper documentation, such as gift deeds and proof of the donor’s source of funds, to establish the legitimacy of the transaction and avoid potential tax issues.