Is there a tax exemption limit for gifting money to a married daughter?

Gift Tax

In today’s Ask Wallet Wise, we answer a reader’s query on the tax implications of gifting money to their daughter. From exemptions to documentation, here’s what the rules say.

Moneycontrol’s Ask Wallet-wise initiative offers expert advice on matters related to personal finance and money-related queries. You can email your queries to askwalletwise@nw18.com, and we will try and get a top financial expert to address your queries.

Is there a limit on claiming tax exemption for gifting money to one’s married daughter?

Expert Advice: Earlier, under the Gift Tax Act, 1958, the person making a gift was required to pay tax. However, since the law did not yield significant revenue, the government abolished it in 1988. For a period thereafter, gifts remained completely tax-free until widespread misuse prompted the government to reintroduce gift taxation in a different form.

In 2004, a recipient-based gift tax was introduced. Under the present law, an individual is required to pay tax on gifts received if the aggregate value of all such gifts during a financial year exceeds Rs 50,000. This limit applies to gifts in both cash and kind. As long as the total value of all gifts received in a year does not cross Rs 50,000, they are not treated as income of the recipient.

There are, however, exceptions. Gifts received from specified relatives are fully exempt, regardless of their value. Parents fall within this definition of specified relatives. Since the donor-based gift tax was abolished long ago, there is no tax liability on the person giving the gift, irrespective of the recipient. Gifts received by a daughter from her parents—whether she is married or unmarried—are not treated as her income.

As such, these gifts are not even required to be reported in the Income Tax Return (ITR), because under the Exempt Income (EI) Schedule, only receipts that are treated as income but are exempt under the Income Tax Act need to be disclosed.

There is no upper limit under the Income Tax Act for making tax-free gifts to a daughter. However, if the gift is made in cash rather than through a banking channel, each individual cash gift should not exceed Rs 2 lakh. Otherwise, the daughter will be liable to pay a penalty equal to the amount of the cash gift received. The Rs 2 lakh limit applies per transaction.

Balwant Jain is a Mumbai-based tax expert

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