Cash gifts from relatives are usually tax-free under the Income Tax Act.
However, a recent case shared by tax advisory platform TaxBuddy shows how things can go wrong without proper records.
In this case, a taxpayer received Rs 10.43 lakh as cash gifts during his 10th marriage anniversary.
Despite claiming the money was exempt, it was eventually taxed because he couldn’t provide basic details about the donors.
Why the Tax Department Took Notice
The taxpayer deposited multiple cash gifts from family members, ranging from Rs 2,100 to Rs 11,000 each.
The total amount came to Rs 10,43,998.
While gifts from relatives are generally exempt, large cash deposits often trigger scrutiny.
The assessing officer asked for:
Names of all donors
Their relationship with the taxpayer
Exact amounts received from each person
Without these details, a general explanation of “customary gifts during an anniversary” wasn’t enough.
The Critical Gap in Proof
The taxpayer couldn’t provide a clear list of donors, proof of relationships, the breakdown of each gift, or identification details like PAN numbers.
Under tax law, exemption for gifts from relatives isn’t automatic.
The donor must be identifiable, the relationship must meet legal definitions, and the transaction must be verifiable.
Without this, the tax officer can treat the money as unexplained income.
Outcome and Lessons for Taxpayers
The tax officer added the full Rs 10,43,998 to the taxpayer’s income.
The Income Tax Appellate Tribunal (ITAT) upheld the decision, confirming that exemption claims fail without proper documentation.
Key Takeaways:
Always maintain records of cash gifts, even from relatives.
At minimum, note the donor’s name, relationship, amount given, and supporting proof.
Eligibility alone doesn’t guarantee exemption — proper documentation is crucial.
Remember, ITAT rulings can be challenged in higher courts.
For large gifts, it’s wise to consult a tax professional to ensure compliance and avoid surprises.
