Will you be taxed on Diwali gifts received? Check how various sources of gifts will be taxed



Diwali is a well-known Hindu festival. During the holiday season, family members, friends, and neighbours exchange gifts and sweets. However, it is important to note that not all gifts received during the holiday season are tax-free. Here are some income tax rules to remember when receiving gifts during Diwali.

The monetary value of gifts that are subject to income tax The Income-tax Act of 1961 establishes the threshold above which gifts received during a fiscal year are taxed. Diwali gifts will be taxed only if they come from a non-exempt relative or friend and the value of the gift exceeds Rs 50,000.

Sujit Bangar, Ex-IRS officer and founder of Taxbuddy.com, an ITR filing website, says, “To arrive at the taxable value, an individual need to aggregate the value of the gifts received from non-exempted relatives and friends in a financial year. If the total value exceeds Rs 50,000, then you are required to report the taxable value of the gifts in your income tax return.”

Here is an example. Suppose you have two friends A and B. A gives you a birthday gift worth Rs 30,000 and B’s gift is worth Rs 25,000. If no other gifts are received in that financial year, the total value of gifts for the period is then Rs 55,000 (Rs 30,000 + Rs 25,000). This exceeds the limit of Rs 50,000 and the entire Rs 55,000 will be taxable in your hands.

Taxation of Diwali gifts received from employer

As this is a prominent festival, many employers give gifts to their employees. Sometimes the gift is apart from the Diwali bonus. According to income tax laws, gifts received from an employer will not be taxable if their value does not exceed Rs 5,000 in a financial year.

Bangar says, “If the value of gifts received from an employer exceeds Rs 5,000 in a financial year, then such gifts will be taxed as perquisite under the head income from salary. Further, bonuses (irrespective of the amount received) will also be taxable under the head salaries. The amount that will be taxable in your hands will be calculated by subtracting Rs 5,000 from the value of the gifts and then adding the amount of bonus received.”

Diwali gifts received from relatives

Section 56 (2) of the income tax act provides a list of relatives whose gifts won’t attract tax irrespective of the amount or occasion. These people are:
a) Spouse of individual
b) Brother/sister of individual
c) Brother/sister of individual’s spouse
d) Spouse of brothers/sisters
e) Individual’s parents
f) Brother or sister of either of the parents
g) Lineal ascendant/descendant (and their spouses) of the individual – for example grandfather, grandmother
h) Lineal ascendant/descendant (and their spouses) of the individual’s spouse

Bangar says, “Cousin is not a relative exempted under the income tax laws. Hence, if the value of gifts received from the cousin exceeds the threshold, it will be taxable.”

Types of gifts

Under the income tax laws, a gift can be any one of the following
a) Any amount of money received without any consideration
b) Specified movable property received without any consideration
c) Specified movable property received at a price lower than fair market value
d) Immovable property received without any consideration
e) Immovable property received at price lower than fair market value

In terms of monetary gifts, those given on the occasion of a marriage are exempt from income tax. Monetary gifts received for any other reason, including Diwali, are taxable in the recipient’s hands.

Shares/securities, jewellery, archaeological collections, drawings, paintings, sculptures, any work of art, or bullion are all included in the definition of movable property. Budget 2022 added virtual digital assets (VDA) to the definition. Crypto assets, non-fungible tokens, and any other asset designated as VDA are all included in VDA.

“This Diwali, if your friend gifts you a VDA or NFT or if a non-exempted relative gifts you a VDA or NFT whose value exceeds Rs 50,000, then such assets will be taxable in your hands. Further, the giver of the gift will be required to ensure that TDS has been deducted from such a gift. If the VDA or NFT is given by the specified relative, then the gift won’t be taxed. However, TDS obligations will be applicable,” adds Bangar.

Do note that no tax will be applicable if a movable property is not covered under the definition of gift. For example, if your friend has gifted you a TV or a motor car, then you are not required to pay any tax on it because these are not covered under the definition of movable property.
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Dr. Kirti Sisodhia

Content Writer

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