Union Budget 2026: Gifts given to daughters-in-law are tax-free, but due to an old clubbing rule, the parents-in-law are required to pay taxes on the income generated by these gifts. This provision, intended to prevent tax evasion, is now becoming a burden on senior citizens.
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Union Budget 2026: Income tax rules are not considered so complex without reason. The applicable provisions are not easy to understand without an expert. Now take the gift rules. Under this income tax rule, if a father gifts property to his son, it will not be taxed, whereas if the same amount is given to the daughter-in-law, she will be liable to tax. In fact, this rule, which was originally made to prevent tax evasion, is now outdated and in some cases it can even have adverse effects. Therefore, many taxpayers hope that this rule may be improved in this year’s Budget 2026.
A Cultural Custom and a Tax Complexity
Gift giving is an important part of Indian family culture. When a new member joins the family, especially a daughter-in-law, gifts of jewelry, gold, money, property, vehicles, and other valuables are often given. Traditionally, gifts are given on weddings, anniversaries, the birth of a child, and other special family occasions. They are an expression of love, affection, tradition, and cultural continuity. Under Section 56(2)(x) of the Income-Tax Act, 1961 (the “old Act”) and Section 92(3) of the Income-Tax Act, 2025 (the “new Act”), wedding gifts are tax-free, regardless of the relationship and value of the gift.
There’s no limit on the value. This problem doesn’t arise when the in-laws make the gift, but rather when the gifted property generates income. This is where many taxpayers, especially elderly parents, unwittingly run into taxation problems.
When will tax be levied?
If money is given by a father to his son or daughter-in-law solely for expenses, the clubbing rule will apply. This means that the amount will be added to the income of the giver. The government implemented the income clubbing rule because many people transfer their income to other family members to save taxes. In such cases, the government has implemented the income clubbing rule. Furthermore, if the gifted money generates income, that income will also be taxed.
Why this provision needs reform
The clubbing provision for gifts given to daughters-in-law was introduced decades ago under the old law, when tax rates were very high and progressive. Women often lacked independent financial standing. Joint families operated from a common financial pool. Gifts could be used to transfer income and reduce tax liability.
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