Income tax on gift: In India, exchanging gifts throughout the festive season is very popular and common. Many people are unaware that presents received over the festive season may be taxed. It’s important to note that not all presents are taxed, and the laws differ based on the nature of the gift and who receives it. If the total value of all gifts received in a financial year exceeds Rs 50,000, it is taxable under income tax laws. The Rs 50,000 limit would apply to both monetary and non-monetary gifts.
However, you should be aware that receiving certain gifts over this holiday season may result in an additional income tax liability. Gifts received during the year are taxed at the donee’s slab rate under section 56(2)(X) of the Income Tax Act 1961 as “income from other sources.
However, not all presents are taxed, and the laws differ based on the nature of the gift and who it is given to. If the total value of all gifts received in a calendar year exceeds Rs 50,000, it is taxable under income tax laws.
Income Tax on Gifts:
1. When the employer gives you the gift:
In India, most employers give their employees presents on special occasions throughout the year, such as Diwali, New Year, and so on.
According to the Income Tax Act, any gift voucher in kind or cash valued at less than Rs 5,000 given by an employer during the financial year is tax-free. However, If the gift exceeds Rs 5,000, it is recognised as part of the employee’s salary and taxed as a ‘perquisite’, depending on the taxpayer’s tax bracket.
2. Gifts from relatives:
Gifts from relatives are completely tax-free, subject to the condition that the relative falls under the definition of a relative for the purposes of Section 56(2).
3. Gifts from friends and others:
Gifts from friends will be considered as other sources of income and will be taxed accordingly. However, gifts worth up to Rs 50,000 received in total during a financial year (at Diwali or any other event) are tax-free.
4. Tax on property received as a gift:
It’s worth noting that receiving an immovable property without money is considered a gift or donation. It implies that you are not paying the giver in any way. In this case, the stamp duty value of the property will be used to determine the property’s taxable value. The stamp duty value that exceeds the consideration value received is taxed, if the property is transferred with insufficient consideration.
If you get cash as a gift, the total amount will be taken into account when calculating the value of your gifts. Similarly, if you get jewellery or stock as a gift, you must pay tax on the fair market value of the item.
5. Presents from close relatives are tax-free:
Gifts from close relatives are tax-free. According to the I-T Act, relatives include the donee’s spouse, brother or sister, brother or sister of the spouse, brother or sister of either of the parents or parents-in-law, any lineal ascendant or descendent, any lineal ascendant or descendent of the spouse, and spouse of the persons referred to above.
Gifts received from any of these people are tax-free, regardless of the nature or value of the gift or the occasion on which it is given. Since friends are not considered relatives, presents from them would be taxed if the total value of such gifts exceeds Rs 50,000 in a financial year.
Gifts given on the occasion of a wedding or transmitted under a Will or inheritance, on the other hand, are tax-free when given by anybody, not just relatives.
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