According to tax expert Balwant Jain, there is a crucial distinction between exempt income and receipts that are not treated as income at all. As reported by Mint, exempt income is income in the first place but made exempt from tax under specific provisions of the Income-tax Act, 1961. However, gifts received from specified relatives are not treated as income in the first place, making them different from exempt income that requires reporting under the EI Schedule of the Income Tax Return. Any form of gifts received by a taxpayer are considered as income and must be disclosed under the head 'Income from Other Sources' in the ITR, subject to taxation at applicable slab rates.
The latest ITR utility for ITR-1 has been modified to enable reporting of gifts received from specified relatives under the sub-category 'Receipts in the nature of Income' under the main category 'Other Income'. As reported by Mint, this change now allows taxpayers to report such gifts even in ITR-1, providing greater flexibility in disclosure options and making the process more accessible for taxpayers who previously had limited options for reporting these tax-free receipts. For taxpayers filing ITR-1 and ITR-2, the deadline is 31 July, 2026, with no extension communicated so far.
The law provides several exceptions under which certain gifts are exempt from taxation. According to Mint reports, gifts received from relatives are exempt from taxation, along with gifts received from non-relatives up to ₹50,000 a year, gifts by way of inheritance or will, and gifts received on the occasion of marriage (wedding gifts). Despite these exemptions, taxpayers must report all gifts received during the financial year, even if they are exempt from tax, as the new ITR structure includes a separate 'Receipts not in the nature of income' field for FY 2025-26 and beyond. This new field is available only in the online filing utility and JSON schema, not in the officially notified ITR forms or PDF versions.
Despite gifts from specified relatives being tax-free, tax experts recommend voluntary disclosure in the interest of transparency. According to Mint reports, disclosing such gifts can help avoid questions later regarding the source of funds used for purchases or investments. While strictly speaking, disclosure is not mandatory, it provides an additional layer of transparency in financial reporting and demonstrates good governance practices for taxpayers who want to maintain clear records of all income sources. Receiving high-value gifts without maintaining adequate records or making necessary disclosures may invite scrutiny from the income tax department, with penalties ranging from 50% to 200% of the tax payable depending on the nature of the default.
For taxpayers who have already filed their ITR-1, there is the option to file a revised return to include gifts received from specified relatives. As reported by Mint, this allows taxpayers to enjoy the satisfaction of having reported such gifts, though strictly speaking, doing so is not mandatory under the current tax regulations. The new ITR-1 utility makes this process simpler and more accessible, providing taxpayers with the flexibility to update their returns even after the initial filing deadline. It is important to remember that the penalty under Section 270A of the Income-tax Act will be applicable in addition to the tax due on under-reported or misreported income.
