When are gifts from non-relatives tax-free?

Dispelling the myth that only gifts from relatives are tax-exempt, here are some smart tax saving clues!

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Provision for taxing gifts as income Section 56(2) of the Income-tax Act provides that one or more gifts received by a person aggregating to more than Rs. 50,000 in a financial year shall be taxed as income from other sources. One of the important exceptions provided, in regard to taxing gifts as income, is in respect of sums received by any individual from his/her relative out of natural love and affection.

For the purpose, the section has defined 'specified relatives' from whom any gifts received are treated as completely tax-exempt, irrespective of the value of the same. This raises an interesting poser. Is it possible to plan receiving gifts from a non-relative such as a close family friend which does not attract any liability for payment of tax? The answer is yes and this write-up shows the way.