Tax implications for the gifts received on the festival of lights

Last Updated On: Nov. 12, 2020, 11:25 a.m.
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Deepavali is the festival of lights. Everyone meet greet and exchange gifts. During this occasion, gifts are given and gifts are received. These gifts may be sweets, dry fruits, and other valuable items like silver or gold.

But, Did you ever thought about the tax implications that these gifts might undergo?

The answer would be no. Everybody is in the assumption that these gifts are not taxable in their hands.

In this article, the tax implication is discussed if you are receiving Diwali gifts from your friends or relatives.

TAX PROVISIONS ABOUT GIFTS:

As we are aware, the Gift Tax was abolished in 1998, but it was again introduced in 2004 with some new provisions where certain gifts were held taxable in the hands of the person who is receiving it. This means the person who is giving the gift will not have to bear any tax implications.

The New Provisions states that if the total value of the gifts in the whole financial year exceeds Rs.50,000  whether received in any form or in any source will be taxable. There is no exemption allowed and the total amount exceeding the limit will be taxable.

 In any form implies gifts received in cash or in-kind as gifts voucher will be considered for checking the limit of Rs.50,000.

Exclusion of gifts that are not taxable:

While calculating the value of 50000/- gifts received from certain relatives are not taxable. Gifts received from relatives include spouse, brothers, and sisters of himself, brother, and sisters of a spouse. The definition of a relative is very vast but the persons mentioned above shall be excluded under gifts provisions. In case if you are receiving a gift on your marriage or from the inheritance, under the gifts act it will not be included while calculating the limit prescribed.

So now, those who used to believe that Diwali gifts are tax-free should disclose the whole value in their ITR if their gift value is exceeding the prescribed limit.

TAX IMPLICATIONS FOR THE FOLLOWING PERSON:

Gifts received by the person engaged in any profession or business:

Any person engaged in business or profession receiving the value of gifts, in the course of carrying on business or profession is treated as business income without there being any basic threshold limit.

Value of all gifts including dry fruit and sweet boxes are required to be offered as income for tax as purposes as such gifts represent perquisite received in the course of carrying out the practice of a profession.

Gift received by a salaried person:

Though salaried at the lower level of the organization receive gifts of small value like boxes of dry fruit and sweet but those who occupy seats of power in any organization receive costly gifts also, like gold or silver coins. So for those who receive the small gifts of sweet and dry fruit box, the probability of the aggregate value of all such gifts exceeding the threshold of fifty thousand is very low but for those who receive costly gifts, the aggregate value may incidentally exceed fifty thousand and thus bring all gifts under the tax net. Strictly speaking, such gifts should be offered as income under the head “Income from other sources.”

Moreover, gifts received from an employer during the year is exempt up to Rs. 5,000/- in the hands of an employee beyond which it will become taxable and the employer is supposed to deduct tax on such gifts.

 Neither salaried not self-employed on Deepawali:

Not only for those who are engaged in business or profession even for those who are not gainfully employed also receive gifts from their elders and friends. In case the elders are not covered within the definition of relatives, such gifts become taxable in case the aggregate of such gifts during the year exceeds the threshold of fifty thousand.

As now we all aware of these tax implications, for all years who have not been disclosing the gifts received in your ITR and now that you are aware you are supposed to do so.

From this year onwards, let us all be law compliant and disclose these gifts if you feel you are required to do so.

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