Inheritance + Gift Tax

Key decisions

1. Q1

   Who counts as a 'relative' for gift-tax exemption?

   Per Sec 56(2)(x) Explanation: SPOUSE, BROTHER/SISTER of self + spouse, LINEAL ASCENDANTS (parents, grandparents) of self + spouse, LINEAL DESCENDANTS (children, grandchildren), BROTHER/SISTER of either parent. Gifts from your aunt, uncle, grandparent, parent-in-law, sibling, brother-in-law, sister-in-law are EXEMPT regardless of amount. NOT relatives: cousin, friend, fiancée (BEFORE marriage), step-relations. Gifts from non-relatives > ₹50K are fully taxable. The ₹50K threshold is PER FY AGGREGATE — ₹30K from friend A + ₹30K from friend B = ₹60K total = taxable in entirety (not just the ₹10K excess).

2. Q2

   Are inherited assets taxed?

   NO direct tax on inheritance itself — India abolished Estate Duty (1985), Wealth Tax (2015), and Gift Tax on inheritance has been gone since 1998. You inherit tax-free. BUT: when you SELL the inherited asset, capital gains apply. Holding period starts from the ORIGINAL OWNER's acquisition date (carryforward) — grandfather bought land in 1985, you sell after inheriting in 2026, it's LTCG. Cost basis = original owner's cost OR FMV as of Apr 1, 2001 (per Sec 49 + grandfathering, your CHOICE if pre-2001 acquisition). Use FMV-2001 election if original cost is very low.

3. Q3

   What about marriage gifts?

   SEC 56(2)(x) EXEMPTION: gifts received by an individual ON THE OCCASION of their marriage are FULLY TAX-FREE regardless of source (relative or non-relative) and amount. Includes cash, jewelry, gold, property, vehicles, securities. CRITICAL: 'on the occasion' = within reasonable time (typically the wedding day + couple of weeks). Gifts AFTER marriage (anniversary, birthday) from non-relatives revert to standard ₹50K rule. Don't confuse with bride's parents' GIFT to groom's family ('dowry') — illegal under Dowry Prohibition Act 1961, separate from tax law.

4. Q4

   Gifts to/from spouse — income clubbing?

   Spouse-to-spouse gift = NOT taxable as gift (relative exemption). BUT Section 64(1)(iv) triggers INCOME CLUBBING: any INCOME generated by the gifted asset is taxed in the HANDS OF THE TRANSFEROR (giver), not the recipient. Example: husband gifts ₹10L to wife, she invests in FD earning ₹70K interest. The ₹10L gift = not taxable. But the ₹70K interest = added to HUSBAND's income (clubbed). Workaround: gifts to spouse for LOAN purpose (with formal loan agreement + interest) avoid clubbing. Gifts to MAJOR CHILDREN don't club. Minor children's gift-income IS clubbed u/s 64(1A).

5. Q5

   How are gifts of property + jewelry treated?

   PROPERTY: per Sec 56(2)(x), if you receive immovable property as gift from non-relative AND stamp value > ₹50K, the EXCESS over consideration paid is taxable. Special rule: if stamp value > 110% of consideration paid (you 'bought' at a discount), difference is taxable as 'Income from Other Sources'. JEWELRY / shares / SECURITIES: same ₹50K threshold from non-relatives. Aggregate FMV considered. Wedding gifts exemption + relative exemption override these. File in Schedule OS of ITR-2/3 + may trigger advance tax if total tax > ₹10K.