Received a large sum from parents this Diwali? Check the tax rules and why you should document the money transfer

Diwali often involves exchanging gifts with friends and family and for some people, this could mean receiving a substantial sum of money from their parents. The money may be intended to help you with a major purchase, such as a house or a car, or even buying electronics and assets.

While such transfers are usually a gesture of financial support wrapped as a festive gift, a large credit in your bank account could raise questions about the nature and source of the funds, if not documented properly.

Do you have to pay tax on gifts from parents?

Any monetary gift received from parents is considered tax-free in the recipient’s hands, regardless of the amount. This means that even if you receive a large amount, say ₹50 lakh from your parents, it would not be treated as an income that you have to offer for taxation.

Parents fall within the specified relatives category, under the Income Tax Act, 2025. The same rule applies to siblings and spouses.

However, gifts received from non-relatives are taxable if their aggregate value exceeds ₹50,000 in a financial year. In such cases, the entire aggregate amount is taxable, not just the portion exceeding ₹50,000.

An exemption applies to gifts received on the occasion of the recipient’s own marriage, among other specified circumstances.

But, receiving a large sum from parents does not mean that the transaction can never attract questions from the income tax department. This is why it is important to document the transfer.

How to document the money transfer?

Even though the gift itself is tax-free, maintaining documentation to establish where the money came from and why it was transferred to you is important. A bank statement may show the movement of money, but it may not always be enough to explain the nature of the large transaction.

To support the transaction, parents can issue a gift deed or a signed gift letter specifying the amount gifted, the date of transfer and confirming that the money is being given voluntarily, with no obligation on the recipient to repay it.

Here is a list of documents that taxpayers should keep handy in case income tax department’s queries arise in the future:

• Bank statements: Show the transfer from the parent’s account to the child’s account, preferably through formal banking channels.
• Proof of relationship: Keep documents such as a birth certificate or other records establishing the parent-child relationship.
• Parent’s source of funds: Retain relevant salary slips, bank statements, investment redemption records or other evidence showing where the money came from.

If you are uncertain or have concerns about the declaration of the source of funds, you can seek advice from a qualified tax advisor for further guidance.

Do you need to report exempt gifts in ITR?

Yes, gifts received from specified relatives such as parents on festive occasions must be reported while filing your income tax return. For instance, if you received ₹50 lakh from your parents this Diwali to help with financing a property, you have to report the transaction in your ITR for AY 2027-28.

This disclosure can be done through the ‘Receipts not in the nature of income’ field in the ITR utilities, which is meant for reporting receipts that are tax-free.

The new field is meant for reporting receipts that are not treated as income under the Income-tax Act. While gifts received from specified relatives and on certain occasions remain tax free, the updated ITR structure provides a separate section to disclose such receipts, wherever applicable.