27/09/2025
Taxation of Gifts in Pakistan
A gift is a transfer of property - whether capital or revenue in nature - without consideration. This absence of consideration sets it apart from regular income sources, which typically involve labor and investment. Since a gift is neither earned nor invested, it may be exempt from tax. However, not every gift qualifies for tax exemption.In fact, the Finance Act, 2019 introduced the distinction between genuine and fake gifts under Pakistani tax law, aiming to prevent tax evasion disguised as gifts.
Conditions for Tax-Exempt (Genuine) Gifts
To qualify for exemption under the Income Tax Ordinance, 2001, a gift must meet the following four key conditions:
1. The Donor Must Be a Relative:
As per Section 85(5) of the ITO 2001, a relative
includes:
• Ascendants or descendants of any grandparent
(maternal or paternal)
• Parents
• Siblings, uncles, aunts, cousins
• Spouse and adopted children of individual or spouse
If the donor or donee falls outside this definition, the gift is not exempt from tax.
2.Transfer Through Banking Channel:
If the gift is in cash, it must be transferred through a verifiable banking channel to be considered genuine. Even when any of the relatives give cash gifts not through the banking channel won't be able to get tax
exemption
3.Disclosure in Tax Returns:
Both the donor and the donee must disclose the gift in their respective income tax returns to ensure transparency.
4.Gift Deed for Capital Assets
If the gift involves immovable property or other capital assets, a properly executed gift deed is required.
What Qualifies as a Fake Gift?
Before the Finance Act, 2019, gifts were often used as a loophole for tax evasion - especially in business transactions. To curb this abuse, Section 39(3) was introduced to treat non-genuine gifts as taxable income under "Income from Other Sources."
Here are some examples of non-genuine (fake) gifts: A gift received from a non-relative
A cash gift, even from a relative, not transferred
through banking channels
A gift of property without a registered gift deed or mutation of title
A gift not disclosed in tax returns of either party
Conclusion:
The FBR has tightened regulations around gifts to ensure that only bona fide transfers between relatives enjoy tax exemptions. If a gift fails to meet any of the above conditions, it is treated as income and taxed accordingly under Section 39.
