Receiving money from close family members abroad has become clearer from a tax perspective. The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) recently ruled that money gifted by a brother-in-law is not taxable under Section 56(2)(vii) of the Income Tax Act, even in the absence of a formal gift deed.
The case involved an Indian taxpayer who received money from his sister’s husband directly into his SBI NRE account. Although the assessee provided bank records, the tax officer disallowed the gift and treated it as “income from other sources” due to the lack of a gift deed.
Who qualifies as a relative?
The Tribunal clarified that the law defines “relative” to include the spouse of a sister, meaning gifts from such relatives are fully tax-exempt. A gift deed is not required to claim this exemption. The bench also emphasised that the Gift Tax Act has been abolished since 1998, making the absence or format of a deed irrelevant for tax purposes.
Manish Garg, Lead-Transfer Pricing and Litigation at AKM Global, noted that the Kolkata ITAT ruling confirms gifts from a brother-in-law are tax-exempt, even from abroad, when supported by proper banking evidence. While a gift deed is recommended, it is not legally required to substantiate the genuineness of the transfer. He advised maintaining key documents like bank statements and gift confirmations to establish the bona fide nature of the gift.
Check the source, not the paperwork
The ITAT noted that the tax officer focused only on the missing gift deed instead of confirming the source of funds. Since the money originated from the brother-in-law’s account, taxing the recipient was unjustified. The Tribunal added that if any issue arises regarding the source of funds, it should be addressed at the donor’s end, not the recipient’s.
Why the ruling matters
-
This decision provides clarity for families where:
-
NRIs send money to relatives for support, education, or investments
-
Gifts are given without formal paperwork due to trust and family ties
-
Bank transfers serve as the primary proof of gifting
Legal experts say the ruling will reduce disputes over cross-border family gifts, ensuring that genuine transfers are not taxed simply for lacking a gift deed.
Please click here to view the full story on CNBCTV18.