Generosity knows no bounds, and there is no limit to the amount one can gift another person. Whether it’s a token of love or a substantial financial contribution, the choice is unrestricted. The act of giving and receiving gifts holds a special place in personal relationships. However, when it comes to accepting cash gifts, a cap of ₹2 lakh is set by tax regulations for any single transaction. Beyond this threshold, it becomes imperative to utilize banking channels for the transaction to adhere to legal norms.
Let’s say your grandfather intends to gift you an amount exceeding ₹2 lakh in cash. In such scenarios, it is advised to conduct the transaction through a banking channel to ensure compliance with the law. This precautionary step not only aligns with regulatory requirements but also serves as a safeguard against potential harassment and legal complications from tax authorities.
Apart from the legal considerations, it is advisable to avoid accepting substantial gifts in cash. This precautionary measure becomes crucial, especially in cases where income tax returns undergo detailed scrutiny. In such instances, the donor, like your grandfather, may be required to substantiate the source of the gifted amount, particularly if it is substantial.
Accepting a single cash gift beyond ₹2 lakh from the same person can attract penalties from the income tax department. The penalty imposed can be equivalent to the amount of the cash gift accepted. To sidestep such repercussions, adhering to the prescribed limits becomes paramount.
It’s important to note that transactions involving gifts from specified relatives, including grandparents, fall under a specific tax exemption category. According to section 56 (2) of the Income Tax Act, 1961, gifts received from specified relatives are not treated as income. Therefore, any amount gifted by your grandfather remains fully tax-exempt in your hands, with no tax liability for either party.
Understanding the intricacies of cash gift limits is essential to ensure a smooth and lawful exchange of financial contributions. By staying within the prescribed limits and considering alternative transaction methods, individuals can enjoy the act of gifting without unnecessary legal complexities.
