Raksha Bandhan 2026: Income Tax Rules You Should Know Before Gifting Money

Raksha Bandhan often comes with cash transfers, jewellery and other gifts between brothers and sisters. While such gifts do not usually create a tax liability, the position can change depending on who gives the gift and what happens to the money later.

“Raksha Bandhan gifts between siblings feel like the simplest thing in the world, but there are a couple of tax provisions worth knowing before you send that transfer or hand over jewellery,” says Dinesh K. Jain, managing partner and chartered accountant (CA), Dinesh Aarjav & Associates, Chartered Accountants.

Gifts Between Siblings Have No Monetary Ceiling

A brother or sister falls within the definition of a relative for income-tax purposes. Therefore, money received from a sibling is exempt irrespective of the amount involved. The Rs 50,000 threshold, which often confuses, applies to gifts from people outside the specified relative category.

The rule becomes important when money comes from a friend or another person who is not covered by the definition of relative.

“Where people should be a little more careful is when gifts come from outside that relative list, say, from a close friend or a cousin's spouse,” says Shourya Garg, founder, Garg & Garg Tax Associates.

If the total value of gifts received from non-relatives crosses Rs 50,000 during a financial year, the entire amount becomes taxable in the recipient’s hands as income from other sources, rather than only the excess over Rs 50,000.

“In those cases, if the total value of gifts received from non-relatives crosses Rs 50,000 in a financial year, the entire amount becomes taxable as "income from other sources," not just the excess,” says Garg.

What Happens After The Gift Is Invested

A tax-free gift does not make the income subsequently earned from it tax-free. If the recipient invests the money in a fixed deposit or mutual fund, the interest or capital gains arising from that investment are taxed in the recipient’s hands.

In the case of siblings, such income is not clubbed back with the giver merely because the original money came as a gift. However, keeping a record of a large transfer can still be useful if the source of funds is questioned later.

“Even though the gift itself is tax-free, if the amount is large, it's worth keeping a simple record — a gift deed or even a dated note mentioning the occasion and the relationship,” says Dinesh K. Jain.

A bank transfer trail, gift deed or dated note can help establish the relationship between the giver and recipient and explain the source of the money if a tax query arises later.

FAQs

1. Are Raksha Bandhan gifts between siblings taxable?
No. Gifts between brothers and sisters are exempt from tax because siblings fall within the definition of relatives for income-tax purposes.

2. Does the Rs 50,000 gift limit apply to siblings?
No. The Rs 50,000 threshold applies to gifts received from non-relatives, not to gifts exchanged between siblings.

3. Is income earned from investing gifted money taxable?
Yes. Interest, capital gains, or other income earned from investing the gifted amount is taxable in the hands of the recipient.