Income Tax on Gifts: Is Giving to a Granddaughter Tax-Free Like Giving to a Daughter? Experts Explain

Gifting money or assets to family members is a common practice in India, especially among parents and grandparents. But one recurring question for taxpayers is whether gifts to grandchildren are treated the same as gifts to children under the Income Tax Act.

Recently, a query from Jaipur resident Deepak Mishra highlighted this concern. He wanted to know if giving a gift to his granddaughter, instead of his daughter, would attract income tax liability. To clarify, Moneycontrol reached out to tax expert and Chartered Accountant Suresh Surana, who explained how the law views such situations.

According to Surana, the Income Tax Act provides clear guidance under Section 56(2)(X). Gifts received from a “relative” are completely exempt from tax, irrespective of the value of the gift. The law defines relatives broadly, and this includes both children and grandchildren.

This means if a person gives a gift to his daughter or granddaughter, the recipient will not be liable to pay any tax on it. Importantly, since the gift is made out of income that has already been taxed in the hands of the giver, the donor also does not have to pay any additional tax.

In simple terms, a granddaughter can receive any amount as a gift from her grandfather without triggering income tax.

While gifts themselves are exempt, there is a special rule for minors. Under Section 64(1A) of the Income Tax Act, if a minor child or grandchild receives a gift that generates income — for example, through interest, dividends, or rental income — that income is clubbed with the income of the parents.

However, there is an exception. If the minor earns income through his or her own skills, talent, or specialized knowledge (such as performing arts, academics, or sports), then that income is not clubbed and is taxed in the minor’s own name.

Therefore, while the gift itself is tax-free, any income generated from that gift in the case of a minor granddaughter would be taxed in the hands of her parents.

For families planning intergenerational wealth transfers, understanding these tax rules is crucial. Gifting directly to children or grandchildren is not only legally permitted but also tax-efficient. Whether the gift is in cash, property, jewelry, or shares, the exemption applies as long as the recipient qualifies as a relative.

This makes gifting a preferred method of supporting education expenses, financial independence, or securing the future of younger family members without worrying about additional tax burdens.

Tax experts recommend documenting gifts properly — either through a gift deed (for immovable property) or by maintaining clear banking records (for monetary gifts). This ensures transparency and avoids disputes with tax authorities.

Additionally, families should consider the long-term implications of gifting, especially in cases where large sums or high-value assets are involved. Estate planning, including wills and trusts, can complement gifts to ensure a smooth transfer of wealth.

If you are planning to gift your granddaughter instead of your daughter, you can do so without worrying about income tax liability. The law treats both relationships equally for tax purposes. However, if your granddaughter is a minor, keep in mind the clubbing provisions for income earned from the gifted assets.

For families, this makes gifting a flexible, tax-efficient tool for supporting the next generation while staying compliant with Indian tax laws.