Who is ‘Your’ Relative? – Detailed analysis of Relative definition for Gift, Income Tax and FEMA

The definition of Relative is different in different Acts and also for different provisions. Also, the definition changes based on the point of view. For example, if Umang is Aanya’s mother’s brother; Umang is a relative to Aanya but Aanya may not be a relative to Umang. This couldeasily confuse anyone.

Let us understand the definition of relatives as per the Income Tax Act, for gift and under FEMA.

As per the Income Tax Act: Section 2(41), “relative”, in relation to an individual, means the husband, wife, brother or sister or any lineal ascendant or descendant of that individual.

As per Gift tax:Any ‘Relative’ means as per Section 56(2),

  1. Spouse
  2. Brother or sister of individual or of spouse
  3. Brother or sister of either parents
  4. Lineal ascendant/descendant of individual or of spouse
  5. Spouse of relatives mentioned in 2. to4.

As per FEMA: FEMA relies on the definition in the Companies’ Act.  As per section 2 (77) of the Companies Act 2013, “Anyone who is related to another if

  • they are members of a Hindu Undivided Family (HUF); or
  • they are husband and wife ; or
  • as may be prescribed. The Rule 4 of the Companies (Specification of definitiondetails) Rules, 2014 lists the relatives as:
  • Father, Mother
  • Son, Daughter and their spouse
  • Brother and Sister

For easy understanding, the definitions of relative under all three regulations are summarized in the following table:

Relationship Income Tax Act Sec.2(41) Income Tax Act Sec.56(2)(Gift) Companies Act Sec.2(77) (FEMA)
Spouse (Husband / Wife) Yes Yes Yes
Parents (Father, Mother) Yes Yes Yes
Brother/Sister, Son/Daughter Yes Yes Yes
Spouse of Brother/Sister No Yes No
Spouse of Son/Daughter No Yes Yes
Parents’ Brother/Sister and their Spouse No Yes No
Spouse’s Brother/Sister and their Spouse No Yes No
Grand-Parents and Grand Children Yes Yes No
Spouse of Grand-Children No Yes No
Great-Grand-Parents and Great-Grand-Children Yes Yes No
Spouse’s Parents, Grand-Parents and Great-Grand-Parents No Yes No

Please note that the above table of relatives shows YOUR relatives i.e. whether they are your relative. It does not show whether you are their relative.

In our example of Umang and Aanya, as mother’s brother is a relative for the purpose of a tax-free gift, Umang is Aanya’s relative and any gift from Umang to Aanya would be considered as a gift from a relative and would not be taxable for Aanya.

However, as sister’s daughter is not a relative, Aanya is not Umang’s relative. Any gift by Aanya to Umang would be considered as a gift from a non-relative and added to Umang’s income if it is more than Rs. 50,000.

It is also important to note that Umang is not Aanya’s relative for any other purpose under the IncomeTax Act or under FEMA.

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