Can grandparents gift money to grandchildren in India?

According to Section 56(2)(vii) of the Income-Tax Act, gifts received from relatives are not taxable. The specified list of relatives includes grandparents and grandchildren as well. Also, neither of you not need to furnish the gift details when filing your tax returns.

Any income arising from the gift needs to be clubbed with the parents' incomes. The investments done by grandparents in the name of grandchildren are a gift and not liable to tax. Vineet Agarwal, Partner, KPMG in India, says, "Any income arising from such gifted amount will be taxable in the hands of the grandchild.

A relative wants to gift cash to me. What are the income tax implications?

• The gifts are taxable in the hands of recipient under Section 56(2)(x) but gift from certain specified relatives are outside the scope of this provision

Q: My grandmother, 85 wishes to gift me a certain sum of money in cash. Can she gift me in cash? If yes, is there any limit for cash gifts under the income tax or any other law? Do I have to pay any tax on this gift? - Abhishek Ray

Answer: There is no limit up to which a person can give a gift to another person either under the income tax laws or any other law. Likewise, there is also no limit up to which a person can give gift in cash. However, there is a limit of ₹2 lakh beyond which one cannot accept cash from any person for any transaction including gift on one occasion. So you cannot accept cash gift beyond 2 lakhs from your grandmother at one time.

In case the amount which you grandmother intend to give you is more than 2 lakhs please carry out the transaction through banking channels in order to comply with the law. Moreover, it is advisable not to accept any gift in cash to avoid any complication in future from tax department.

In case your income tax return is selected for detailed scrutiny, your grandmother may have to prove the source of such money if the amount involved is huge failing which the same will get taxed in your hands at flat rate of 60% in addition to entailing penalty also.

The gifts are taxable in the hands of recipient under Section 56(2)(x) but gift from certain specified relatives are outside the scope of this provision. Grandparents are covered within the definition of specified relatives, so gift received from your grandmother will be fully exempt in your hand without any upper limit. Likewise, your grandmother also does not have any tax liability in respect of this transaction.

Hence, if the aggregate value of gifts received during the year exceeds Rs. 50,000, then total value of all such gifts received during the year will be charged to tax (i.e. the total amount of gift and not the amount in excess of Rs. 50,000).