Enjoying Diwali gifts? Beware of tax implications | The Financial Express

lipped from: https://www.financialexpress.com/money/income-tax/enjoying-diwali-gifts-beware-of-tax-implications/2721537/

Not only to family members, as per their financial capacities, people give gifts to improve business relations and to make friends and neighbours happy as well on Diwali.

Enjoying Diwali gifts? Beware of tax implicationsPeople try to spread happiness during the auspicious occasion of Diwali by going on a gifting spree.

People try to spread happiness during the auspicious occasion of Diwali by going on a gifting spree. Not only to family members, as per their financial capacities, people give gifts to improve business relations and to make friends and neighbours happy as well.

“A lot of cheer and gifting marks the days leading up to Diwali. Employers give gifts to employees and gifts are also exchanged between friends and family members. Taxes are the last thing on your mind while receiving or giving a gift. But some gifts may be taxable in the hands of the receiver,” said Archit Gupta, Founder & CEO Clear.

While gifts you receive from family members are tax free, one may have to pay tax on the gifts received from friends, business relations and employers.

“Gifts are amounts or property received without consideration. Gifts in cash or kind in excess of Rs 50,000 would be liable to income-tax in the hands of the recipient. 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,” said Aarti Raote, Partner, Deloitte India.

“The exception to taxation is in cases where gifts are received from relatives as defined in the Act. Parents, spouse, siblings of self and spouse, lineal descendants and ascendents of self and spouse etc have been specified as relatives in the Act. Thus gifts to a resident sister would not be subject to income-tax in her hands. The same would apply to a sister who is a non-resident,” she added.

Archit Gupta elaborates the taxability of gifts received from different sources:

Gifts from friends

Gifts of cash up to Rs 50,000 or less are not taxable. Do remember to aggregate all your gifts of cash in the year. If they exceed Rs 50,000 the entire sum is taxable. For example if you receive Rs 20,000 from your friend to help you buy a new camera, there is no tax liability for you at this stage. After a few months you receive Rs 25,000 from another friend, to fund a leisure trip you are planning. Since it’s your 25th birthday and your friends gift you Rs 10,000. Now your total gifts receipt has crossed Rs 50,000 and your entire receipts of Rs 55,000 shall be taxable. This will be added under the head ‘Income from Other Sources’ and taxed according to your tax slab, unless you decide to return the money in the same financial year. Material gifts exceeding Rs 50,000 in value are also taxed similarly.

Gifts from family members

Gifts received from 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. Your spouse, your parents, your brother or sister (and their respective spouses), brother or sister (and their spouses) of your spouse, brother or sister of either of your parents, any of your own or your spouse’s lineal ascendant or descendant are defined as relatives. 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.

There may not be any tax implication if you are planning to gift your children or parents money or gold or any gifts on Diwali; do keep in mind that though the receipt of a gift of fixed deposits is not taxable for your children, the interest income from such fixed deposits will be clubbed with your own income. Or if you have gifted your wife a house or an asset, income from such a gift may be taxed in your return.

Gifts from employers

Any gift, which is given to an employee on an occasion such as Diwali or marriage is taxable for the employee. Similar to a performance bonus, which is fully taxable, gifts which are received as awards or on occasions are taxed too. An exemption of up to Rs 5,000 is allowed on gifts received in cash or kind by the employer. These may be received by the employee himself or by a member of his family.

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