Understanding tax implications on Diwali gifts | Fusion - WeRIndia

Diwali, known as the festival of lights, brings joy, celebrations, and the tradition of exchanging gifts.

While gift-giving is integral to Indian culture, many people remain uncertain about the tax implications on gifts, especially those given during Diwali.

In India, the Gift Tax Act of 1958 was abolished in 1998, yet certain gift taxation provisions were reintroduced in 2004 under the Income Tax Act of 1961.

As per Section 56(2)(x) of the Act, gifts received above a certain value are taxable, making it essential to know when and how gifts may attract tax.

Taxable Gifts and the ₹50,000 Threshold

As per Section 56(2)(x) of the Income Tax Act, gifts exceeding ₹50,000 in a financial year are taxable under “Income from Other Sources.”

Taxable items include:

Monetary Gifts: Cash, cheques, and bank transfers.

Movable Property: Jewelry, shares, bullion, and artworks.

Immovable Property: Land, buildings, or other real estate.

If the total value of these gifts exceeds ₹50,000, the entire amount is taxed.

Certain gifts are exempt:

Gifts from Relatives: Gifts from close family members, including the spouse, parents, siblings, children, and in-laws, are tax-free.

Wedding Gifts: Any gift received during one’s wedding, regardless of value or donor, is tax-exempt. This, however, does not apply to other occasions.

Gifts from Non-Relatives: Gifts from non-relatives are only taxable if their value surpasses ₹50,000 annually.

Inheritance: Money or property inherited is tax-free.

Charitable Donations: Gifts to charities are exempt and may qualify for deductions under Section 80G.

Employer Gifts for Diwali

Employer gifts also come with tax rules:

• Cash Gifts: Fully taxable.
• Non-Cash Gifts: Non-cash items worth up to ₹5,000 are exempt; amounts over this are taxed.
• Bonuses: Fully taxable.

While Diwali is a time of celebration, staying informed about tax obligations ensures a worry-free festive season.

Keeping records of high-value gifts and reporting them correctly can prevent tax issues, ensuring a joyful and tax-compliant Diwali!

Image by Daniel Rivero Horie from Pxhere (Free for commercial use / CC0 Public Domain)

Image Published on March 15, 2021

Image Reference: https://pxhere.com/en/photo/1639971