Are Gifts from Step-Siblings Taxable? ITAT Mumbai Ruling Explained | Income Tax Guide 2025

Mumbai ITAT rules gifts from step-siblings are not taxable under Section 56(2)(vii)(b). Learn the case facts, tax impact, FAQs, and practical insights for Indian taxpayers.

Q1: What’s the core dispute in this case? A: The heart of the matter was whether a gift of property worth ₹7.88 crore from a step-sister to her step-brother should be taxed under Section 56(2)(vii)(b) of the Income Tax Act. The Tax Department said: Step-siblings aren’t listed as “relatives” under the law — so the gift should be taxed as “income from other sources.” The taxpayer said: Step-siblings are family — just not by blood, but by marriage — so the gift shouldn’t be taxed.

Q2: How did the tax department even find out? A: The case came to light in January 2021 when the step-brother applied for a lower TDS certificate to sell the gifted property.During verification, the tax office saw the donor was a step-sister — not a biological one — triggering a notice.

Q3: What were the main legal arguments? Taxpayer’s side quoted: • Section 45S of the RBI Act • Section 2(77) of the Companies Act • Black’s Law Dictionary All recognizing step-siblings as relatives.Tax Department’s side: Strict reading of Section 56 of the Income Tax Act — which does not list step-siblings.

Q4: What did the ITAT decide? Ruling in favour of the step-brother, ITAT said:Step-brothers and sisters are relatives in common sense, not just in strict legal terms.       The law already recognizes step-children, so step-siblings should also be covered.Adopted a purposive and humane interpretation of family ties.

Q5: What kinds of sibling relationships did the ITAT recognize? 1. Uterine siblings – Same mother2. Consanguine siblings – Same father3. Germane siblings – Both parents same4. Step-siblings – Related through parents’ marriage5. Adopted siblings – Legal siblings via adoption

Q6: What is the Doctrine of Affinity? The Doctrine of Affinity means family relationships created by marriage. ITAT applied this doctrine, holding that step-siblings are part of family ties by affinity, hence exempt from tax.

Q7: Why is this case important? First Indian precedent recognizing step-siblings as relatives for tax purposes Removes ambiguity in modern family structures Saves taxpayers from unfair tax on genuine gifts

Q8: What’s next? The Income Tax Department may still appeal in High Court.The Income Tax Act does not yet explicitly include step-siblings, so a law change is expected. Practical Example If you receive a flat from your step-sister as a gift, as per this ruling, no tax applies under Section 56(2)(vii)(b) — provided documents prove the relationship.

FAQs Q1. Are gifts from siblings taxable in India?No, gifts from siblings (including step-siblings as per this ITAT ruling) are not taxable under Section 56 of the Income Tax Act. Q2. Are gifts from non-relatives taxable?Yes, if the value exceeds ₹50,000 in a year, it is taxable as “Income from Other Sources.” Q3. Does this ITAT ruling apply across India? Not yet. Until the CBDT or a higher court confirms, it applies mainly as a precedent in Mumbai ITAT jurisdiction. Q4. What documents should I keep for a step-sibling gift? ✓Gift deed ✓Proof of step-relationship (marriage certificate of parents, family tree affidavit) ✓Identity proofs of both parties

Confused about gift taxation and income tax notices? Get expert clarity today! Contact CA Bhavesh Panpaliya at 88887 55557 for personalized tax solutions.