Diwali is just around the corner and Indian citizens are already preparing for a long holiday. The festival of lights is one of the major celebrations in the country. During Diwali, gifts are given to their dear ones. Even some companies give bonuses to their employees. While one loves to receive gifts, however, a very common concept that income taxpayers need to understand is the taxability of gifts. Whether be a Diwali bonus or monetary gifts, they are liable for taxes.
As per Income Tax guidelines, from the taxation point of view, gifts are classified as any sum of money received (monetary gift); specified movable properties (gift of movable property); specified movable properties received at a reduced price (i.e. for inadequate consideration); immovable properties received without consideration (gift of immovable property); and immovable properties acquired at a reduced price.
Monetary gifts are subject to taxes, however, a certain limit of exemption is provided in a financial year.
Also, monetary gifts received by an individual will not be charged to tax in a case like money received from relatives which can be spouse, brother, sister, or parents, among others.
In the case of HUFs, monetary gifts are not charged to tax are money received on the occasion of the marriage of the individual; sum received by way of inheritance; sum received in n contemplation of death of the payer or donor; sum received from the local authority; sum received from any fund, foundation, university, medical institutions, others; money received as a consequence of demerger or amalgamation of a company among others.
Let’s understand if your Diwali gift is taxable
An expert said, “The season of Diwali brings along with light, lots of gifts and joy. But these gifts could cost you tax. Here’s a low-down on how presents from friends, relatives, and employers received during this festive season will be taxed.”
On gifts from employers, expert said, “Gifts or vouchers received in a financial year shall be tax-exempt if their total amount is less than ₹5,000. Any gifts you receive over ₹5,000 will be added to your income and taxed as per your tax bracket. For instance, if you get presents of around ₹5000 during Diwali and ₹3,000 again at Christmas, you will be required to pay tax on the gifts worth ₹3000, which is over Rs. 5,000.”
“Some employers give Diwali bonus instead of gifts. This will be considered as a part of their salary and charged to tax,” expert added.
Similarly, another expert said, “Diwali Bonus received from employer is considered to be income from salary and is fully taxable.”
In regards to gifts received from friends and family, expert highlighted that Gifts from family members are not subject to tax. Family members are explicitly mentioned in the income tax:
Spouse of all the people covered above
A friend or person not listed here is not considered a family member. Thus, presents from them will be subject to tax.
If the total value of gifts received during the year, whether in cash or kind, exceeds Rs. 50,000, they are subject to tax under Section 56(2) of the Income Tax Act. According to this section, gifts up to Rs. 50,000 are tax-free; however, if this threshold is breached, the entire gift value will be taxable.
Immovable Property Received as Gift
A land or building received as a gift during the year will be taxed if its stamp duty value exceeds ₹50,000. Tax will be levied on the stamp duty value.
While another expert explained, any Diwali gift that you receive from your family members like spouse, parents, grandparents, and siblings is exempt from tax irrespective of the amount or value of the gift. But it is important to note that any income generated by investing this gift amount will be taxable as per the applicable tax rules on that investment.
He further mentions that if the gift is from friends or distant relatives then such gifts are tax-free only if the amount is equal to or less than ₹50,000. If the gift exceeds ₹50,000/- then the entire amount of the gift will be taxed. Also, one should know that this ₹50,000 limit is an aggregate limit of all the gifts received in one financial year and not just Diwali gifts. If the aggregate amount of gift crosses ₹50,000/- then the entire amount is taxable.
“Taxpayers should know that the gifts are taxed as per their income tax slab. So, if a person is in a 30% tax bracket then these gifts will be taxed at 30%,” he added.
Diwali festival will begin on October 22 with Dhanteras and will continue till October 26. The big day which is Lakhsmi Puja will be on October 24.
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