Gift from daughter-in-law to parents-in-law: Is it taxable, and will the income be clubbed?

Gifting money or assets within a family may seem simple. But when it comes to income tax, the tax treatment can change depending on who is giving the gift to whom. This becomes particularly interesting in the case of gifts between a daughter-in-law and her parents-in-law

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

As per the income tax laws, gifts are taxed in the hands of the recipient in case the aggregate of the gifts received from all the sources exceeded fifty thousand rupees in a financial year.

This is subject to certain exceptions like gifts received from certain specified relatives as well as inheritance received under a will or personal law of the person. The parents-in-law and daughter-in-law are included in the definition of the specified relatives.

So whether the gifts are received by the daughter-in-law from the parents-in-law or by the parents-in-law from the daughter-in-law, there is no tax liability on either of them at the time of making of the gifts. However, the tax treatment of income received on such gifts differs in both situations.

The income accruing to the daughter-in-law for assets received from parent-in-law is required to be clubbed with the income of the parent-in-law who made such gift as long as the relationship subsists. However, in the reverse situation where the gift is made by the daughter- in-law to the parent-in-law, the clubbing provisions are not applicable and income earned on assets so gifted is taxed in the hands of the parents-in-law.

So neither the gifts received from the daughter-in-law is taxable in the hands of the parent-in-law nor is the income earned by the parent-in-law required to be clubbed in the hands of the daughter-in-law making such gifts.