My brother’s wife recently delivered a baby girl to whom I wish to gift Rs. 25,000. What is the tax implication that my brother and I are likely to face on the gift?
-V K Balaji, Hyderabad
Congratulations on the new addition in the family. It is a nice gesture on your part to gift money to your niece, which could be used for her later in life. As per the income tax provisions, under Section 56 of the Income Tax Act, 1961, money exceeding Rs 50,000 received by an individual during a financial year without consideration, is taxed under the head “income from other sources” in the hands of the recipient. There is exemption allowed when you gift money that is more than this sum to relatives like brother or sister or parents. So, even if you gift more than Rs 50,000 to your niece, there is no tax liability that your brother will face, as the recipient on behalf of your niece. However, any subsequent income from investment of the money shall be taxable in the hands of the recipient depending on the nature of income.
Further, as your niece is a minor, clubbing provision will apply. Accordingly, the income, if any, from investment of money shall be included in her father’s or mother’s income (whoever earns more) and will have to be offered to tax.
