Diwali gifts: Know how they are taxed

• Follow

Diwali is just a few days away. Exchange of gifts during Diwali is one the common practices in our culture. But those lovely gifts can turn to be a nightmare if you do not know the tax implications. You might have to pay hefty tax on your Diwali gifts. Money9 gives you a brief description of tax implication on Diwali gifts.

The rule

From cash gifts to gold and silver coins or any other expensive gifts might attract tax.

“Many people are not aware that gifts can attract tax. Under section 56(2) of the Income Tax Act, gifts received during the year are taxed as per the slab rate under ‘income from other sources,” said Arvind Agarwal, a tax expert from Kolkata.

But tax rules for gifting differ as per the nature of the gift and from whom it is received. The receiver must pay the tax, not the giver.

Personal gifts

You are required to pay taxes on gifts if the aggregate value of all gifts received during a year exceeds Rs 50,000. If the aggregate amount is Rs 50,000 or less, it is tax-free. However, if the total value exceeds the threshold even by a rupee, the entire amount is taxed according to the rule, said Agarwal.

But for this, the receiver has to declare “received as gift” in his/her books. Then only it would be treated as taxable or not.

For immovable property, when it is received without consideration, its stamp duty is chargeable to tax, whereas when the property is transferred with inadequate consideration, stamp duty value exceeding consideration is taxed.

In the case of jewellery and shares, the fair market value of such items is chargeable to tax.

Exemption

If you get the gift from close relatives, it won’t come under the purview of tax. Gifts received from relatives are exempt from tax. Receiver’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, spouse of the persons referred above all qualify as relatives as per the IT Act.

“Gifts received from any of these people, irrespective of the nature and value of the gift and the occasion when the gifts are transferred, are exempt from tax. Since friends are not considered relatives, gifts from them are fully taxed,” said Agarwal.

Professional gifts

It is common practice among many corporate companies to gift something to their employees during Diwali such as a car or trip to a foreign land or, in a few cases, even a piece of real estate.

Usually these are for employee welfare and do not come under tax purview. If they gift something to the customers, they categorise those as sales promotion, which is exempt from taxes, Agarwal told Money9.

But if these are considered as ‘gifts’, income tax would be levied on the product if the cost is more than Rs 50,000.