Now that the celebrations of Raksha Bandhan are done and dusted, many sisters are left asking if the cash gifts they received from their brothers would be taxable. Apart from other gifts, the tradition of brothers gifting money to their sisters remains. However, how much amount would be exempt from tax is a question that is still asked.
There is no cap on the monetary value of gifts provided to relatives who are in an ancestral or descendant relationship. Under the Income Tax Act 1961, this rule extends to your sister, as she shares a direct blood relation with you. Hence, any gift exchanged between you and your sister is exempt from taxation for both parties.
Priyadarshini Moreshwar Mulye, a SEBI Registered Investment Advisor and Founder, ARTHA FinPlan said, “If the gift is in the form of cash from someone not deemed as relative, then it is exempt till ₹50,000 in the hands of the receiver. However, if you plan to give shares as a gift then as per Section 56(2) of the Income Tax Act, income from such gifts would be under the head ‘Income from Other Sources’ in the Income Tax Return, and tax at slab rates will be applicable to the recipient.”
Hiren Thakkar, Chartered Accountant Proprietor, Hiren S Thakkar & Associates added, “As per Section 56(2) of the Income Tax Act, gifts received from the relative (As per definition of relative prescribed in Income Tax Act) is exempt from tax. In this case, the real brother and sister relationship is covered under the definition. The threshold of ₹50,000 given under Section 56(2) is from gifts received from persons other than relatives defined in the law.”
Thakkar added, “However, one cannot gift in cash beyond ₹2 lakh under Section 269ST of the Act. Also, for such a large amount, it is better to go through a banking channel as cash transactions are always been viewed as suspicious eyes. Shares in this case are also exempt and no restriction on the amount. Cash transactions are also covered under Section 269ST of the Act. So, must be exercised with the help of Chartered Accountants.”
In most cases, gifts are received without consideration, though in certain cases, the value of gifts doled out in consideration whether in money or in kind is negligible.