Family Settlement, Gifts & Inheritance — Tax Guide India

The most important rule — gifts from relatives are tax-free

If you received money or property as a gift from any of the following relatives, it is completely tax-free — no limit on the amount:

• Spouse (husband or wife)
• Brother or sister
• Brother or sister of your spouse
• Parent (mother or father)
• Grandparent
• Son or daughter
• Grandchild
• Aunt or uncle (parent's sibling)
• Spouse of your aunt or uncle
• Spouse of any of the above relatives
• Any direct ancestor or descendant

Other tax-free scenarios

When is a gift taxable?

A gift is taxable only when:

• It comes from a non-relative (friend, colleague, employer, etc.)
• AND the total value of all such gifts in a financial year exceeds ₹50,000

In this case, the entire amount (not just the excess over ₹50,000) is taxable as "income from other sources" at your slab rate.

Family settlement — is it always tax-free?

Genuine family settlements where family members resolve disputes over ancestral property or family assets are generally not taxable — because it is treated as recognition of pre-existing rights, not a new gift. But:

• The settlement must be a genuine resolution of a dispute (not a tax-avoidance arrangement)
• It should ideally be documented — a family settlement agreement
• Large settlements with unclear backgrounds often attract scrutiny

What about shares or property received as a gift?

If you receive shares or property as a gift from a relative (tax-free), and later sell them:

• The cost of acquisition = what the original owner paid for it (not the market value when you received it)
• The holding period = from when the original owner bought it (not from when you received it)
• You may owe capital gains tax when you eventually sell, based on this original cost and holding period