Income Tax on Diwali Gifts: The festival season has started with Durga Puja but an important festival like Diwali is yet to come. On the occasion of Diwali, along with friends-relatives, some companies also give Diwali bonus to their employees. You can call them Diwali gifts. Exchanging gifts is a show of your happiness, but have you considered that you may have to pay tax on them as well? Let us know what are the rules related to gifts and in which cases you will have to pay tax.
Tax on gifts received from friends and family
Archit Gupta, Founder and CEO, Clear says that cash gifts up to Rs 50,000 or less are not taxable. Don’t forget to add value to your gifts received throughout the year. If their value is more than Rs 50,000 then you will have to pay tax on the entire amount. For example, if you receive Rs 30,000 from your friend to help him buy a new camera, then there is no tax liability for you. Then, after a few months, you take Rs 25,000 from another friend, which you are going to use for a trip. After this comes your birthday and your friends give you a gift of Rs 5,000. Now all in all your total gift receipt has crossed Rs.50,000 and the entire amount of Rs.60,000 received will be taxable.
According to Gupta, this would be added under the head ‘Income from Other Sources’ and taxed as per your tax slab. Similar tax is levied on physical gifts of value above Rs 50,000.
Gifts received from relatives are not taxed
Gifts received from relatives are tax free. What’s more, there’s no limit to how much you can get as gifts from relatives! Gupta says that relatives are also defined in the Income Tax Act and unfortunately love interests are not included. Your spouse, your parents, your brother or sister (and their respective spouses), your spouse’s brother or sister (and their spouse), the brother or sister of either of your parents The descendants of you or your spouse are defined as relatives. All gifts received on marriage are exempt from tax but gifts received on Diwali or on your birthday are taxable. These rules also apply where the giver or the beneficiary is a non-resident.
Income tax and investment expert Balwant Jain says that according to section 56(2)(X) of the Income Tax Act 1961, if the nephew gives a gift to the uncle or the nephew to his maternal uncle, then he can become taxable.
If you are planning to give money or gold or any gift on Diwali to your children or parents then no tax will be levied. Keep in mind, says Gupta, gift receipt of fixed deposits is not taxable for your children, interest income from such fixed deposits will be clubbed with your own income. Or if you have gifted any house or property to your wife, then the income from such gift may become taxable.
Gifts received from employers may have to be taxed
Any gift, which is given to an employee on an occasion like Diwali or a wedding, is taxable to the employee. Like a performance bonus, it attracts tax liability. Gifts that are received as prizes or on special occasions are also taxed. Jain says you are allowed a discount of up to Rs 5,000 on gifts given by the employer in cash or in kind. These gifts can be received by the employee himself or any member of his family.