Tax filing rules: As tax filing season starts, many taxpayers are discovering that gifts -- often seen as informal financial exchanges -- can carry significant tax implications. From cash transfers to property and shares, the Income Tax Department is tightening scrutiny, and even seemingly harmless transactions may need to be reported.

In India, asset transfers — including sales, exchanges, and gifts — are governed by specific tax rules, with capital gains and income tax provisions applying depending on the nature of the transaction. A key area of confusion continues to be around gift taxation, particularly who bears the tax liability.

Who pays tax on gifts?

“A common misunderstanding is that the person giving a gift pays tax. In India, it is usually the person receiving the gift who is taxed, not the giver,” said CA Aditya Sesh, Founder and Managing Director, Basiz Fund Services.

He explained that if an individual receives money, property, or other assets exceeding ₹50,000 from someone who is not a specified relative, the entire amount is treated as income and taxed accordingly. This rule applies regardless of whether the gift is in cash, immovable property, or financial assets.

However, the law provides clear exemptions. Gifts received from close family members—such as parents, spouse, siblings, or children—are fully tax-free, irrespective of the amount. Similarly, gifts received during marriage or through inheritance or a will are not subject to tax.

Capital gains and future tax implications

Beyond immediate tax liability, taxpayers also need to consider the long-term implications of receiving assets as gifts. According to Sesh, a common mistake occurs when the recipient later sells the gifted asset.

“When you later sell a gifted asset, you must use the original cost of the person who gave it to you, not the current value. This is where many taxpayers make errors,” he noted.

This rule directly impacts capital gains calculation. For instance, if a property originally purchased at a lower price is gifted and later sold at a higher value, the taxable gain is calculated based on the original acquisition cost, potentially increasing the tax burden.

Higher scrutiny through AIS

Tax compliance is also becoming more data-driven. The Income Tax Department’s Annual Information Statement (AIS) now captures a wide range of financial transactions, including property registrations and high-value transfers.

“This means such receipts and transfers are more visible, and non-reporting is more likely to be questioned,” Sesh added.

This increased transparency makes it critical for taxpayers to disclose all relevant transactions accurately, even if they believe certain receipts may not attract tax.

Reporting requirements and compliance

Income arising from asset transfers must be reported in income tax returns, typically under ITR-2 or ITR-3, depending on the classification of income. Filing becomes mandatory if any taxable income arises from such transactions.

Experts advise maintaining proper documentation, including gift deeds, bank records, and proof of relationship, to substantiate claims in case of scrutiny. Failure to report or incorrect disclosure can lead to notices, penalties, or reassessment.

Taxpayer should note...

The core principle remains straightforward: receiving certain gifts can create a tax liability, while future sale calculations must follow the original owner’s cost. With enhanced reporting systems like AIS in place, these transactions are no longer easy to overlook.

For taxpayers, the takeaway is clear—understanding the rules around gifts and asset transfers is essential to avoid costly mistakes and ensure smooth tax filing.

Published on: Apr 17, 2026 2:07 PM IST