Are gifts from step-siblings taxable under Indian Income Tax Law? The Income Tax Appellate Tribunal (ITAT), Mumbai, has delivered a significant ruling that answers this question in favor of taxpayers — especially Non-Resident Indians (NRIs).

In a recent case involving a gift of a ₹7.88 crore property in Mumbai by a step-sister to her NRI step-brother, the ITAT ruled that the gift is not taxable under Section 56(2)(vii) of the Income Tax Act. This judgment now clarifies that step-siblings qualify as 'relatives' under Indian tax laws for the purpose of gift exemptions.

Case Background: Gift of Property by Step-Sister to NRI

• The property in Mumbai was originally gifted to a woman by her father and step-mother in 2003 and 2011.
• In January 2016, the woman gifted the entire property to her step-brother (an NRI), without any monetary consideration.
• She also paid ₹38.3 lakh as stamp duty on the gift deed — showing genuine intent and legal compliance.
• Later, while applying for a lower TDS certificate under Section 197, the Income Tax Department raised an objection and added ₹7.88 crore as taxable income under Section 56(2)(vii), alleging the gift was taxable because step-siblings are not “relatives.”

Legal Issue: Are Step-Siblings Considered “Relatives” Under Section 56(2)(vii)?

Section 56(2)(vii) of the Income Tax Act, 1961, taxes gifts received without consideration if the value exceeds ₹50,000 — except when such gifts are received from a “relative.”
The definition of “relative” includes:

• Spouse of the individual
• Brother or sister of the individual
• Brother or sister of the spouse of the individual
• Brother or sister of either of the parents
• Any lineal ascendant or descendant

However, it does not explicitly mention step-brothers or step-sisters — leading to disputes like this one.

ITAT Mumbai Judgment: Step-Siblings Are “Relatives” for Tax Purposes

The ITAT Mumbai rejected the Income Tax Department’s narrow interpretation. The Tribunal ruled that:

• Step-siblings are related “by affinity,” which is recognized in legal and social frameworks.
• Cited definitions from Black’s Law Dictionary, Companies Act, and RBI Act to support a wider, purposive interpretation.
• Noted that excluding step-siblings would defeat the intention of the legislature — which is to exempt genuine gifts among family members.
• Held that step-siblings fall under the broader family umbrella and must be treated as “relatives” under Section 56.

Final Ruling: Gift Is Exempt from Income Tax

The ITAT concluded that:

“A gift of immovable property made by a step-sister to her step-brother is a gift from a ‘relative’ under Section 56(2)(vii) and hence not taxable.”

The appeal was allowed in favor of the NRI, and the addition of ₹7.88 crore as taxable income was deleted.

What This Means for NRIs & Resident Indians

This ruling brings much-needed clarity on gift taxation in India and has major implications for NRIs:

Key Takeaways:

• Step-siblings now qualify as relatives under the Income Tax Act for gift exemptions.
• Gifts from step-family members (siblings, parents, etc.) made out of natural love and affection can be structured without triggering tax liabilities.
• Gift deeds should always mention the relationship, reason for gift, and preferably bear the stamp duty paid.

Compliance Tips for NRIs Receiving Gifts in India

• Document the relationship in the gift deed (mention step-brother/sister explicitly).
• Use registered gift deeds and pay appropriate stamp duty.
• Obtain a CA certificate (Form 15CB) when repatriating funds or selling gifted assets.
• Always disclose gifts in the tax return under the exempt income section.

Common Questions on Gift Tax for NRIs

Is a gift from step-sister taxable for an NRI?
No. As per ITAT Mumbai’s latest ruling, gifts from step-siblings are exempt under Section 56(2)(vii) as they are now considered “relatives.”

Do NRIs need to pay tax on gifts received in India?
Not if the gift is from a close relative. But if it is from a non-relative and exceeds ₹50,000 in value, it may be taxable.

Can NRIs repatriate funds from sale of gifted property?
Yes, but only after obtaining CA certification (Form 15CB) and submitting Form 15CA online. RBI’s FEMA guidelines also apply.

Need Help with Gift Tax Planning or Property Transactions in India?

At Dinesh Aarjav & Associates, we specialize in NRI taxation, gift tax planning, lower TDS certificates, CA certification (Form 15CB), and end-to-end compliance services. If you’ve received a gift or plan to give one, our experts will ensure it’s tax-efficient and legally sound.