How Much Tax Will I Have to Pay if My Parents Give Me ₹5 Lakh?

Receiving a gift from your parents is often a moment of joy, but it’s important to understand the tax implications under Indian law. According to Section 56(2)(x) of the Income-tax Act, 1961, gifts are taxed as “Income from Other Sources” if they exceed ₹50,000 in a financial year. However, there are exemptions when gifts are received from “relatives,” and parents are considered close relatives for this purpose.

Are Gifts from Parents Taxable?

 No, gifts received from parents are fully exempt from tax, irrespective of the amount. Under the Income-tax Act, a ‘relative’ includes parents, spouse, siblings, children, and lineal ascendants and descendants. Therefore, even if your parents gift you ₹5 lakh (or any amount), it will not be taxed in your hands.

Is There Any Documentation Required?

 While the amount is tax-free, it is advisable to keep documentation, such as a gift deed or a simple declaration letter, confirming that the ₹5 lakh received is a gift. This protects you in case of any future inquiry by the Income Tax Department, especially for large transactions.

When Could Tax Issues Arise?

 While the receipt of ₹5 lakh from parents is not taxable, if you invest this money and earn income (like interest, dividends, etc.), the income earned will be taxable under the applicable heads (such as “Income from Other Sources” or “Capital Gains”). However, the original gift remains non-taxable.

Conclusion

 If your parents gift you ₹5 lakh, you do not have to pay any income tax on it. It is wise, however, to maintain proper records to prove the genuineness of the gift if needed. Always stay informed and cautious, especially for larger sums, to ensure smooth compliance with tax regulations.

Read more on: ₹25 Lakh Gift from Parents: Do I Need to Pay Tax?

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