Diwali, the festival of lights, is not only a time for celebration but also a season of exchanging gifts. While receiving presents is a delightful tradition, it’s important to be aware of the tax implications that may accompany certain gifts. In this article, we will shed light on which gifts are tax-exempt and which may be subject to taxation.
During the festive season, you may receive gifts from various individuals, and it’s essential to understand the tax rules that apply to these gifts.
Tax-Exempt Gifts from Relatives:
According to the Income Tax Act (ITA), Diwali gifts received from relatives are fully exempt from taxation. But who qualifies as a “relative” in the eyes of the tax authorities? The term “relative” includes the following individuals:
(A) Spouse of the individual (B) Brother or sister of the individual (C) Brother or sister of the spouse of the individual (D) Brother or sister of either of the parents of the individual (E) Any lineal ascendant or descendant of the individual (F) Any lineal ascendant or descendant of the spouse of the individual (G) Spouse of the person referred to in items (B) to (F)
These gifts are not subject to taxation, regardless of their value.
Taxable Gifts from Non-Relatives:
On the other hand, gifts received from individuals who do not fall under the “relative” category may be subject to taxation if their value exceeds Rs 50,000. In such cases, they are taxed under the head “Income from other sources.”
Gifts received on special occasions are generally exempt from tax, and these occasions include:
- Wedding
- As per a Will
- By way of inheritance or in contemplation of death of the payer
- Gift received from the local administration
- Gift received from any educational institution under Section 10 (23)
- Gift received from a charitable organization
However, it’s important to note that gifts received on the occasion of Diwali are not included in this list. Therefore, gifts received from non-relatives on Diwali or similar occasions, with a value exceeding Rs. 50,000, will be subject to taxation.
Assets Subject to Gift Taxation:
Experts suggest that certain assets are subject to gift taxation, which includes:
- Shares and securities
- Jewellery
- Archaeological collections
- Drawings
- Paintings
- Sculptures
- Any work of art
- Bullion
In other words, gifts of assets other than those listed above, even if they exceed Rs. 50,000, would not be subject to tax. However, the receipt of monetary consideration exceeding Rs. 50,000 or immovable property with a value exceeding Rs. 50,000 falls within the purview of taxation.
This Diwali, as you exchange gifts with your loved ones, keep in mind the tax implications of certain gifts. Knowing the rules can help you enjoy the festivities without any unexpected financial surprises.
