How do tax rules differ when a father gifts to his daughter-in-law compared to his son?

Tax implications of gifting among family members

Can a father gift Rs 20 lakh to his son and daughter-in-law to buy property without triggering tax? And will the rules change if a brother gifts the same amount to his sister? We break down the tax implications, exemptions under Section 56(2)(x), and whether clubbing provisions apply in such cases.

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What are the tax implications if a father gives Rs 20 lakh to his son and daughter-in-law to buy property, and how should it be treated? Will the implications change if a brother gives the same amount to his sister?

Expert Advice: Where a father intends to gift cash of Rs 20 lakh to his son and daughter-in-law for purchasing a property, the tax implications depend on the nature of the transaction and the relationship between the donor and the donees. Any sum of money received without consideration is generally taxable under the head “Income from Other Sources” as per Section 56(2)(x), unless it falls within specified exemptions. A gift from a father to his son and daughter-in-law qualifies for exemption, as the term relative under Section 56(2)(x) includes lineal ascendants and descendants and their respective spouses.

However, Section 64(1)(vi) provides for the clubbing of income arising from assets transferred directly or indirectly by an individual to his daughter-in-law without adequate consideration. This provision may apply if the transferred amount generates taxable income. Mere capital contribution towards the purchase of a self-occupied property or another non-income-generating asset would not trigger such clubbing immediately.

If a brother gifts such an amount to his sister, the transaction is fully exempt under Section 56(2)(x), as siblings are included within the definition of relatives. Such a gift, irrespective of the amount, will not attract tax in the hands of either the donor or the donee. Additionally, the clubbing provisions do not apply in such cases.

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