Can a newborn with PAN receive ₹12 lakh cash gift tax-free? What income tax rules say

A query has been raised on whether a newborn child, who already has a PAN, can receive a cash gift of up to ₹12 lakh from non-relatives without any tax liability. The assumption is that since income up to ₹12 lakh may fall within the tax-free slab, such a gift would also be exempt from tax.

However, the tax treatment of gifts is governed separately under income tax laws, and not simply by the individual income tax slab limits.

Today's Q&A explains such details in response to a query by a reader.

**Answer: **Section 56(2)(x) of the Income Tax Act 1961 and its corresponding sections 92 (2) (m) and 92(3) of the Income Tax Act 2025 provide that gifts received by a person shall be treated as his income if the aggregate of all gifts received by him exceeds fifty thousand rupees in a year.

Please note that the tax officer can investigate the credentials of the persons giving a gift to the child. In case you are not able to establish the genuineness of such a gift, the same will be taxed as unexplained credit at a higher rate of tax than the marginal rate of tax.

This may also entail a penalty based on the value of such gifts.

This rebate is available only against the tax liability for normal income, and one has to pay tax on incomes that are taxed at special rates, like capital gains on listed shares and units of equity-oriented schemes, etc.

Income Tax laws also provide for clubbing of passive income arising to a minor child. Such income is required to be clubbed with the income of the parent with the higher income. The clubbing shall continue to apply even if the parent with higher income changes, unless and until the assessing officer directs otherwise.

An exemption of up to ₹1,500 is available in respect of each child for such income. Since the gift received by the minor is treated as his income, the same shall be clubbed with the parent with higher income.

You can contribute to his PPF account, which is the best and legally permissible way, as the interest on the PPF account is exempt and will not have any tax impact due to clubbing provisions.