Under Indian tax law, when a resident father-in-law gives a sum of money to his daughter-in-law who is a non-resident Indian (NRI), that gift is not taxable in India — neither for the donor nor for the recipient. The law treats gifts between specified relatives as exempt, regardless of the amount. Below is a clear explanation of what that means in practice and what steps both parties should take to keep the transaction clean and compliant.
The legal position in simple terms
Gifts received from specified relatives are exempt from income tax in India, no matter how large. A transfer of money by a resident father-in-law to his daughter-in-law who is an NRI falls within this exemption. In short, the amount received as a gift is not treated as the daughter-in-law’s taxable income under Indian law, and the father-in-law does not incur income tax liability simply because he gifted the money.
Who counts as a “relative”?
- Indian tax rules define a list of relatives whose gifts are exempt. A father-in-law is included within the scope of relatives for these purposes because he is the father of the spouse.
- Gifts from these relatives are exempt irrespective of the amount. Gifts from persons outside this list may be taxable to the recipient if the total exceeds prescribed thresholds.
Tax implications for the donor (father-in-law)
Gifting a sum of money is not treated as income for the donor, so the act of giving does not create an income-tax liability for the father-in-law. However, he should keep proper records of the transfer (see Documentation below) to demonstrate the nature of the transaction if ever queried by tax or banking authorities.
Tax implications for the recipient (daughter-in-law, NRI)
- The gifted amount itself is not taxable in India because it’s received from a specified relative.
- Any income arising from that gift — for example, interest on a bank deposit made in India from the gifted money — will be taxable according to the recipient’s residential status and Indian tax rules. NRIs are generally taxable in India on income that accrues or arises in India.
- If the recipient resides and pays tax abroad, she should also check the tax rules of her country of residence: some countries tax worldwide income or have different reporting requirements for received gifts.
Documentation and compliance
Good documentation helps avoid misunderstandings with banks and tax authorities. Recommended documents include:
- Gift deed or written declaration stating the amount, date, relationship, and that the transfer is a gift without consideration.
- Proof of relationship such as marriage certificate or other relevant documents to establish that the donor is a father-in-law.
- PAN details of the donor and recipient, and bank statements showing the transfer trail.
- Any correspondence with the bank showing that the transfer was routed through proper banking channels rather than cash.
Banks or financial institutions may request these documents before processing large transfers, and they help support the tax-exempt status if called for by authorities.
Practical tips and cautions
- Avoid cash transfers: use bank-to-bank transfers so the transaction is easily traceable.
- If funds are sent abroad, banks may ask for supporting documents to comply with foreign exchange or anti-money-laundering rules. Keep copies of all paperwork.
- While the gift is tax-exempt in India, the recipient should confirm whether her country of residence treats gifts from abroad as taxable or reportable.
- Income generated from the gifted funds (interest, dividends, rent) will usually be taxable — keep books and report that income where required.
- When in doubt, consult a qualified tax advisor or chartered accountant for personalised advice and to ensure full compliance with both Indian rules and the laws of the recipient’s country.
In summary, a resident father-in-law’s gift to his NRI daughter-in-law is tax-free in India for both parties, provided the relationship and the nature of the transfer can be demonstrated. Proper documentation and banking transparency will make the process smooth and protect both donor and recipient from future queries.