A Nephew Is a Relative—But Is He a Lineal Descendant?
A few weeks ago, a seemingly simple family transaction came up for discussion. A nephew wanted to gift an immovable property to his uncle (Father’s Brother). The property had a stamp-duty value of ₹ 1.65 crore. There was no consideration and a gift deed was proposed. At first glance, it looked like a simple gift between relatives—and therefore, naturally, one might expect it to be tax-free. But income-tax law had a different story to tell.
The first question was whether a nephew is a “relative” for the purpose of the gift provisions. For the purpose of section 92(5)(g) of the Income-tax Act, 2025, surprisingly, the answer is no. Therefore, the ₹1.65 crore stamp-duty value can become taxable in the hands of the uncle. The second question was about the subsequent sale of the property. If the uncle sells it, what would be his cost of acquisition? Here too, the law has an interesting answer. Since Rs. 1.65 Cr is already subjected to tax under the gift provisions, it becomes the cost for capital-gains purposes subsequently. Further, since the nephew had acquired the property in 1998, his period of holding is also relevant in determining whether the subsequent gain is short-term or long-term. Thus, the gift changed hands—but its tax history did not entirely disappear.
Just when the story appeared to have settled, however, a professional colleague raised another interesting question: “You have said that a nephew is not a relative as per Income Tax Law. But could he not be a lineal descendant?” And that question takes us straight into the family tree in this week’s column!
What Exactly Is a Lineal Descendant?
The word “lineal” is the key. A lineal relationship moves directly up or down the family line. For example:
Grandfather → Father → Son → Grandson
Here, the grandfather is the lineal ascendant and the father, son and grandson are his lineal descendants. Thus:
Father → Son — lineal.
Grandfather → Grandson — lineal.
Great-grandfather → Great-grandson — lineal.
But suppose the grandfather has two sons—A and B. A has a son, C.
C is the lineal descendant of A. But C is the nephew of B. Although C is also a descendant of the common grandfather, he is not a lineal descendant of B. Why? Because the relationship from B to C does not move directly down the same family line. It first moves sideways from B to his brother A, and then down to C. That is a collateral relationship, not a lineal relationship.
The Common Grandfather Does Not Change the Relationship
This is exactly what happens in the ₹1.65 crore case. The nephew is undoubtedly a lineal descendant of the common grandfather. But he is not a lineal descendant of his uncle. The common grandfather connects the two branches of the family tree, but it does not make one branch the direct line of the other. In simple words, the nephew is not “below” the uncle in the direct family line. He is in a parallel branch. The family tree may connect them—but tax law asks how they are connected.
What Does the New Income-tax Act Say?
Section 92(5)(g) of the Income-tax Act, 2025 includes, among specified relationships, “any lineal ascendant (maternal as well as paternal) or descendant” of the individual. Therefore, a person’s father, mother, grandfather, grandmother, son, daughter, grandson or granddaughter would fall within the direct line of relationship. But the nephew comes through the individual’s brother or sister. He therefore does not become a lineal descendant merely because both share a common ancestor.
Maternal or Paternal—The Doubt Is Gone
The Income-tax Act, 2025 expressly states “maternal as well as paternal” while referring to lineal ascendants. This is significant because under the old law, the position regarding the maternal side was not expressly clarified. While examining the Income-tax Bill, 2025, the Select Committee had noted the possibility of ambiguity and recommended that the position be clarified.
The enacted law now makes it clear. Thus, if a person receives a gift from his maternal grandfather or maternal grandmother, the relationship cannot be questioned merely because it comes through the mother’s side. The family tree has two sides. The tax law now expressly recognises both.
Relative in the Family—But Not Necessarily in the Tax Definition
The nephew is only one example. In ordinary conversation, we use the word “relative” very generously. Income-tax law does not. A cousin, for example, may be a very close family member, but is not a lineal descendant or ascendant and does not fall within the other specified categories of section 92(5)(g). An uncle or aunt, on the other hand, can fall within the definition where the relationship is that of the brother or sister of either of the individual’s parents. Relationships created through marriage also need careful examination.
Similarly, spouses of certain specified relatives are also covered. Therefore, instead of asking: “Is he my relative?”, ask: “Under which specific category of the statutory definition (as discussed in the first part of the article) does he fall?”
That small change in the question can completely change the tax answer. The family tree may have many branches—but the tax exemption may cover only the branches specifically named by the law.
The TAX Talk
In normal course, if we say Mr. X is a relative of Mr. Y, we naturally assume that Mr. Y is equally a relative of Mr. X. But when it comes to the Income-tax Act, things are not always so simple!
Our ₹1.65 crore family story proves it. A nephew may be a close family relative but may not be a “relative” for a particular tax provision. A common grandfather does not make him the lineal descendant of his uncle. And even after the gift is taxed, its tax story does not necessarily end—the subsequent sale can bring capital gains into the picture.
So, before accepting a gift, don’t simply ask, “Is he my relative?” Ask: Who is giving? Who is receiving? Under which provision are they related? Perhaps that is why the old saying still rings true: “The hardest thing to understand is the Income-tax Act!”
[Views expressed are the personal views of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & response to queries are available at www.theTAXtalk.com]
