Exchanging gifts between friends, office colleagues, business clients and family members is an important part of Diwali celebrations in India. Companies also give gifts to employees. But have you ever thought about tax implications on gifts you received? Taxes are the last thing on your mind while receiving or giving a gift. Always remember that certain gifts may be taxable in the hands of the receiver.
Section 56 of the I-T Act has provisions related to the taxability of gifts. Let’s understand how this provision deals with different types of gifts.
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Gifts from family members
Gifts received from family members and relatives are exempt from tax. What more, there is no limit on how much you can receive! Relatives have also been defined in the act and unfortunately do not include love interests.
All Gifts received on marriage are exempt from tax but those received on Diwali or your birthday are taxable. These rules are also applicable where the giver or receiver is a non-resident.
Gifts from friends
When you get gifts from friends, business relations and employers then you are liable to pay tax. Gifts in cash or kind in excess of Rs 50,000 would attract tax in the hands of the receiver. For gifts in excess of the Fair Market Value of the gift over the consideration if any paid would be regarded as a taxable gift if such difference is in excess of Rs 50,000.
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Tax laws seek to charge tax on the gifting of certain valuable assets termed ‘movable property’. It means shares, securities, jewellery, archaeological collections, drawings, paintings, sculptures, any work of art, bullion and virtual digital assets.
Gifts from employer
If you receive gifts, vouchers, or bonus from your employer during festive occasions such as Diwali, Christmas, etc, they will not be taxed if the aggregate amount of these gifts during a financial year does not exceed Rs.5,000. If the amount exceeds this threshold value of Rs.5,000, the gifts will be taxed under the head ‘income from salary’ as per your tax bracket.
