Can I gift to my granddaughter instead of my daughter? What will be the income tax implications?

Gifts received from a relative are not taxable in the recipient’s hands, irrespective of the amount

Gifting money or assets to family members is a common practice in India, especially when it comes to passing wealth across generations. But many people are unsure about the tax implications when the gift is made not to their children directly, but to grandchildren. The Income Tax Act has clearly defined who qualifies as a “relative” for tax purposes, and this definition plays a crucial role in determining whether a gift is taxable or exempt. Today's Ask Wallet-Wise query explains whether you can gift to your granddaughter instead of your daughter and if any annual limit applies

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Can I gift to my granddaughter instead of my daughter? My granddaughter is my daughter’s child. If so, is there any annual limit? Please clarify.

Expert Advice: Gifts received from a relative are not taxable in the recipient’s hands, irrespective of the amount. The term “relative” has been specifically defined in Section 56(2)(x), and in relation to an individual, it includes lineal ascendants and lineal descendants. Accordingly, a granddaughter (whether the son’s daughter or the daughter’s daughter) is treated as a lineal descendant of the donor and therefore falls within the definition of “relative.”

Consequently, any amount gifted to a granddaughter will be fully exempt from tax in her hands, and there is no monetary ceiling or annual limit prescribed under the Act for such gifts. Further, since the gift is made out of income already taxed in the hands of the donor, there is no additional liability for the donor.

However, if the granddaughter is a minor, then in accordance with the clubbing provisions of Section 64(1A), any income earned from investments made out of the gifted funds may be clubbed with the income of her parents (the parent with the higher income), except in the case of income that accrues or arises due to the application of the minor’s skill, talent, or specialised knowledge.

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