Gift received or given to relatives. How income tax is calculated?

Can a gift be given any number of times in the financial year or it should be given only once? Am I required to have any documentation done for the gift if I am giving it to my parents? Can I claim any deduction for such gifts made to my parents? My parents do not have PAN as they do not have any income.

Answer: There are no restrictions as to the number of times one can make a gift during a year either to the same person or to different persons. Each such transaction shall be treated as separate gift. 

Preferably you should carry out the gift transaction through banking channel to have proper proof and trail of transactions. However, if you are making a gift in cash, each transaction of cash gift should be less than two lakhs else the recipient may have to face penalty proceedings for accepting gift in cash for two lakhs or more. 

In order to complete the transaction of gift, it has to be accepted by the recipient during the life time of the donor as per the Indian Contract Act, so it is advisable to prepare some document evidencing the transaction which is signed by you as well as your parents. There are no tax benefits available to you in respect of such gifts. 

Though gifts received from some specified relatives like parents and children are not treated as income of the recipient but the tax department may enquire into your source for making such gift, failing which the same may be taxed at flat rate of 60% in the hands of your parents. There is no problem even if your parents do not have PAN in order to receive the gift.

Balwant Jain is a tax and investment expert and be reached on and at @jainbalwant on his twitter handle.

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