Will a gift or money received from your mother fall under the purview of income tax? Know the rules..

Families often provide financial assistance to their children for education, purchasing a home, starting a business, or meeting other needs. Consequently, many wonder whether money or gifts received from a mother fall under the purview of income tax and if they are liable for taxation.

In a significant recent ruling, the Hyderabad Income Tax Appellate Tribunal (ITAT) clarified that if funds received from a mother are genuine and a proper record of their source exists, they cannot be classified as 'unexplained investment.' In other words, provided the necessary documents and evidence are available, the Income Tax Department cannot levy a tax simply because the money was received from one's mother. Here is an explanation of the rules regarding gifts received from a mother.

What is the case about?
A case came before the Hyderabad ITAT involving an individual who had received ₹5.72 lakh from his mother to purchase a house. During scrutiny, the Income Tax Department questioned this amount and attempted to levy a tax, treating it as unexplained investment. However, the individual explained that the money had been provided by his mother. Bank records and other relevant documents were submitted to substantiate this claim. The Tribunal held that when the source of funds is clear and there is a record of the mother's identity and the transaction, it cannot be termed an unexplained investment. Consequently, the tax department's action was deemed invalid.

Which documents should be preserved?

If you receive a gift or money from your mother or a close relative, preserve all relevant documents. These should include a gift deed or a written gift letter, records of the bank transfer, the donor's bank statement, and—if required—proof of the source of funds. These documents help establish that the money was received through legitimate means. Should the Income Tax Department raise questions in the future, you can easily substantiate your position using these records. If the money was transferred via a bank and a complete record exists, the likelihood of facing future complications is significantly reduced.

What does Section 69 state? Section 69 of the Income Tax Act applies to cases where an individual is unable to explain the legitimate source of funds used for an investment or asset. In such a scenario, the Income Tax Department may treat that amount as your income and levy tax on it; however, if you can prove—with supporting evidence—that the money was received from your mother or a relative eligible to make tax-exempt gifts under the law, then Section 69 will not apply.

Points to Consider
Gifts received from a mother, father, or other close relatives generally do not attract tax. Nevertheless, transactions should always be conducted transparently. Whenever possible, use bank transfers instead of cash. Keep all documents related to the gift safe. If the amount is substantial, it is advisable to consult a tax advisor. Having all records and proper documentation in place makes it easier to respond to any inquiries from the Income Tax Department.

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