Gift Received From Nephew Is Not Exempt From Taxation Under Section 56 (2)

An individual will have to pay tax on gift received from his nephew or niece. Any income on gift transferred by the husband to his wife will be clubbed in the husband’s income. You cannot claim the benefit of taxation in respect of pre-EMI interest where the same is reimbursed by the builder prior to handover of the property

Do I have to pay tax if I make a gift of Rs. 5 lakh to my maternal uncle?


Under the prevailing tax laws, the donor does not have to pay any tax in respect of gifts made by him. However, the recipient has to pay tax on the gifts received by him if it exceeds the threshold limit of Rs. 50,000 in a year. Gifts up to Rs. 50,000 in a financial year received from all sources are not to be treated as income, but once the aggregate of all gifts received during the year exceeds the threshold limit of Rs. 50,000, the full value of all the gifts received become taxable in the hands of the recipient.

Though Section 56(2) provides for exemption in respect of gifts received from certain specified relatives, which includes uncles, whether maternal or parental, it does not include nephews. A gift received from a maternal uncle is exempt, but not the other way round.

So, gift received by a maternal uncle from his nephew is not exempt under Section 56(2) of the Income-tax Act, 1961. So, your uncle will have to include this gift in his income along with other gifts received by him during the year and pay tax on it as well.


I am a retiree and fall in the higher income tax bracket. Half of my income comes from pension and the other half from interest on bank deposits. My wife has an annual income of approximately Rs 2 lakh from tuition, besides fixed deposits of approximately Rs 5 lakh. She also files her income tax return (ITR). Can I transfer some money (say about Rs 15 lakh) to her account which she can put in fixed deposits in her name resulting in my interest income getting reduced? This way I will be able to limit my taxable income up to Rs Rs 7 lakh and get rebate under Section 87A under the new tax regime.


The money which you will be transferring from your account to your wife’s account can either be treated as a gift or loan. If it is treated as gift, then it will not be treated as her income, and neither will you have any tax liability. However, any income arising on gift made to your wife shall be added to your income under the clubbing provisions and effectively defeat the very purpose of this transaction.

In case the same is to be treated as a loan, there will be no problem in giving this as an interest-free loan as long as you are not paying any interest on money borrowed by you. Though there is no provision in the income tax laws to include any notional interest income on interest-free loan given to your wife, but the income tax officer may apply provisions of Section 60 which provides that in case any income is transferred to a person without transferring the asset, the income shall be included in the income of the transferor.

The course of action suggested by you is not entirely risk-free and may not be acceptable to the assessing officer in case your case is selected for detailed scrutiny. Thus, you may have to litigate on this matter.


My daughter has booked a flat this year and has taken a home loan for the same. She is paying interest on the loan, too. According to the agreement with builder, the interest on home loan will be refunded by the builder till he gives possession of the flat. How should this refund of interest be treated for income tax purposes?


There is no express provision under the income tax laws to deal with the kind of situation you have mentioned.

However, since the builder is reimbursing you the interest up to the date of possession, which is called pre-equated monthly instalment (pre-EMI), it will not have any tax implications for your daughter as she can show the same as reimbursement of interest received against pre-EMI interest paid by her to the lender.

However, do note that your daughter will not be entitled to claim the benefit in respect of such pre-EMI interest, which is otherwise available in five equal instalments under Section 24, beginning from the year in which the possession is taken.

The author is a tax and investment expert

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)

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