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.

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.

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.

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.

Eshita Gain is a digital journalist at Mint, where she joined in May 2025. She writes on corporate developments, personal finance, markets, and business trends, with a focus on delivering timely and relevant stories to a broad audience. <br><br> While her core beat lies in business and finance, she is not confined to a single niche and frequently explores stories across domains, including international relations and policy developments. <br><br> She holds a postgraduate diploma in business and financial journalism by Bloomberg from the Asian College of Journalism (ACJ), Chennai. During her time there, she received rigorous training in tracking financial data, interpreting corporate filings, and reporting on business developments. She has pursued her graduation from St. Joseph’s University, Bengaluru in a multi-disciplinary course. Her majors included Journalism, International Relations, peace and conflict studies. <br><br> Eshita has previously worked in digital marketing, which enables her to write SEO friendly copies that are clear and engaging. <br><br> Her primary interest lies in breaking down complex subjects and writing clear, accessible copies that inform readers. She aims to bridge the gap between technical financial language and everyday understanding. Outside the newsroom, Eshita enjoys reading non-fiction, and exploring new places, constantly seeking fresh perspectives and stories beyond headlines.

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