On Diwali, everyone enjoys giving and receiving presents. People exchange many types of presents, such as cash, sweets, clothes, gold jewellery, gadgets, and so on! Across the country, the Diwali celebration is seen as an auspicious occasion to distribute expensive presents such as vehicles and real estate. Employers, too, provide Diwali bonuses to their employees.
While it is customary to exchange presents during Diwali, many people are unaware that some expensive gifts may also have tax repercussions. If you do not report correctly, you may wind yourself attracting the wrath of tax collectors. Gifts received in a fiscal year can be taxed as “income from other sources” at the slab rate under Section 56(2) of the Income Tax Act.
According to the Income Tax Department, a monetary gift is any quantity of money received without consideration (in return for a receipt or something of worth). Specific movable item acquired without consideration is known as a “gift of moveable property.”
Taxation of Gifts
Diwali is coming up towards the end of this month. On Diwali, everyone enjoys both giving and receiving presents. People offer cash, candy, clothing, and gold trinkets as presents. Aside from that, presenting luxury presents such as automobiles and real estate during Diwali is considered lucky. On Diwali, the firm also gives presents to its staff as a bonus. If you are expecting or have received a gift or bonus, you should be aware of the tax implications. It is critical to understand the tax requirements for any gift, bonus, or monetary donation.
Gifts received during a financial year may be subject to taxation as “income from other sources” under section 56(2) of the Income Tax Act at the applicable slab rate. Gifts from immediate family members are excluded, though. Despite the fact that the Diwali gift mostly relies on the giver. Gifts that the taxpayer receives are subject to tax under section 56(2)(x) of the Income Tax Act of 1961. These things are a part of the taxable gifts.
When are Gifts Tax-Free?
Gifts of any kind received from relatives, gifts received under will or inheritance, gifts received on marriage, and gifts received in contemplation of death are not taxable. Sehgal adds, However, gifts received from other than relatives are only taxable if the fair market value of such gifts exceeds Rs 50,000, otherwise not. Further, when an immovable property is settled under a trust, it is also exempt from taxation. It is worthy to note that gift tax was abolished several years ago.
In the nutshell, usually, gifts of any kind received from any relative on any occasion like Diwali or even without any occasion are not taxable at all.
However, gifts received from other than relatives are taxable if the fair market value of such gifts exceeds Rs. 50,000. It is noteworthy that gifts received on marriage by a bride and a groom are not taxable despite having been received from a relative or a non-relative. Gifts received from people other than family, on the other hand, are taxed if the fair market value exceeds Rs. 50,000. It is worth noting that wedding presents received by a bride and groom are not taxed, whether they come from a related or a non-relative.
Gifts of immovable property obtained from anyone other than family without payment are taxable if the stamp duty value exceeds Rs 50,000. However, if this property is received after paying some amount from someone other than relatives, and that amount is less than the stamp duty value of the same property by more than Rs. 50,000, the difference between the stamp duty value of the property and such amount is taxable.
There is no Car Tax
According to the Income Tax Act, assets worth more than Rs 50,000, such as shares and stocks, jewellery, archaeological collections, paintings, sculptures and art, or gold, might contain anything. The automobile, however, is not considered property. As a result, the vehicle may not be liable to gift tax.
Exemption from taxes on gifts received from them. Section 56 of the Income Tax Act exempts gifts from family from taxation.
Examples of Non-Taxable Gifts
Gifts received from family are excluded from income taxation. The definition of a relative is defined in the Act. A related, according to the definition, means-
- The individual’s spouse
- The individual’s sibling
- A sibling of the individual’s spouse
- A sibling of either of the individual’s parents
- The individual’s lineal descendant or ascendant, or the individual’s spouse
Gifts received from anybody other than the people named above will be taxed if they exceed the Rs.50,000 limit.
Further, any gifts given on the occasion of a wedding or transferred under a will or by way of inheritance are exempt from tax. This is irrespective of whether the gifts are received from a relative or any other person.
These things are Taxed
Any immovable property like land, building, etc. having stamp duty of more than Rs 50000, jewellery, shares, paintings or other costly articles exceeding Rs 50000, other than immovable property Any property worth more than Rs 50000 is included.
Income Tax on gifts would be subject to the following limits:
Income Tax on gifts would be subject to the following limits:
|Gifts Received in the form of
|Chargeable to Income-tax if
|Aggregate value exceeds Rs 50,000 in a Financial Year (FY)
|Movable Property without consideration
|Aggregate Fair Market Value (FMV) exceeds Rs 50,000 in a FY
|Movable Property with consideration
|Aggregate FMV exceeds the consideration by Rs 50,000 in a FY
|Immovable Property without consideration
|Stamp duty value of exceeds Rs 50,000
|Immovable Property with consideration
|Stamp duty value exceeds the consideration by Rs. 50,000 as well as the stamp duly value exceeding the consideration by 5%
Company Diwali Bonus/Voucher
Any gift certificate worth more than Rs 5,000 would be deemed part of your pay and taxed according to the appropriate tax bracket. Furthermore, any money credited to your account by the firm will be deemed salary and taxed accordingly. This implies that any Diwali bonus paid by your firm will be taxed.
It should be mentioned that any monetary present from the firm, even if it is less than Rs 5,000, would be taxed because it will be deemed part of your income. However, Rs 4,999 in the form of a voucher or coupon is exempt from tax.