Who Qualifies as a "Relative" for Tax-Free Gifts Under the Income Tax Act, 2025?

Gifting within families has always been an integral part of Indian culture — whether during weddings, festivals, or as simple gestures of love and support. However, from a taxation standpoint, not every gift received from a family member qualifies as tax-free. The Income Tax Act, 2025 has introduced a significantly clearer framework for determining whose gifts remain outside the ambit of taxation and whose gifts can trigger a tax liability. A careful understanding of the revised definition of "relative" is therefore essential for every assessee who receives or plans to receive gifts from family members.

Why the Definition of "Relative" Is Crucial for Gift Taxation

Under Indian income tax law, gifts received by an assessee are treated differently depending on the relationship between the donor and the recipient.

The fundamental rule is straightforward:

• Gifts received from a legally recognised "relative" are fully exempt from tax, regardless of the amount involved.
• Gifts received from any person who does not fall within the statutory definition of "relative" become fully taxable in the hands of the recipient if the aggregate value exceeds ₹50,000 in a financial year.

This means that whether a gift of ₹10 lakhs is tax-free or taxable depends entirely on whether the donor qualifies as a "relative" under the law. Even a single categorisation error can result in a significant, unexpected tax demand.

What Has Changed in the Income Tax Act, 2025?

The Core Amendment: Maternal and Paternal Relatives Now Expressly Covered

The most significant refinement introduced by the Income Tax Act, 2025 relates to lineal ascendants and descendants. Under the earlier framework governed by Section 2(41) of the Income Tax Act, 1961, the definition of "relative" referred to "lineal ascendant or descendant" without explicitly distinguishing between maternal and paternal lineage.

This seemingly minor omission had real-world consequences. Tax officers, in several instances, raised disputes questioning whether gifts received from maternal grandparents — such as a Nana (maternal grandfather) or Nani (maternal grandmother) — were genuinely exempt from tax. Since the earlier statute was silent on the maternal versus paternal distinction, assessees found themselves in a grey zone when receiving gifts from their mother's side of the family.

The Income Tax Act, 2025, under Section 2(94), has now expressly settled this ambiguity by incorporating the phrase "lineal ascendant, maternal as well as paternal." This unambiguous statutory language eliminates the scope for departmental scrutiny on this ground.

Illustration: Consider Mr. Sharma, whose maternal grandfather gifts him ₹6 lakhs. Under the new Act, this gift is clearly and unambiguously exempt from tax. There is no longer any room for the department to question whether the maternal grandfather qualifies as a "relative" for this purpose.

This is a meaningful and practically impactful change for a large number of assessees across India who receive financial support from their mother's parental family.