The festival of Diwali is all about spreading smiles and joy. People also exchange sweets and gifts with their relatives and close friends during this time.
In offices, too, employees are given bonuses, gifts and sweets.
While this has become an essential part of Diwali celebrations across the country, many remain oblivious that gifts received in a financial year can be taxed under the existing Income Tax (I-T) law.
According to the Income Tax Act, tax can be levied on certain gifts depending on their value and from whom you received them.
If the gift you have accepted does not fall under the exempted category, you will have to disclose it while filing the Income Tax Return (ITR).
When the aggregate value of gifts an individual receives exceeds Rs 50,000 in a financial year, it will be subject to tax as per Section 56(2) of the Income Tax Act.
These gifts can be in the form of cash or kind. However, gifts given by close relatives or family members have been given tax exemption. This means you don’t have to pay taxes on gifts from your brother, sister, parents and spouse.
The definition of relatives, however, does not include friends; thus, gifts received from them fall in the category of “income from other sources” and are subject to tax as per the applicable tax slab.
Gifts are classified into different categories depending on their nature.
Gifts such as cash, draft or cheque are treated as monetary gifts and can be taxed if the aggregate value is more than Rs 50,000 in a financial year.
If gifts have been given in the form of land or building, they are considered immovable property. Here, the gift becomes taxable if the stamp duty value of the property exceeds Rs 50,000.
Meanwhile, gifts such as jewellery, paintings, drawings, shares/securities, and collections, among others, are movable properties and are subject to tax if the fair market value of the items received by an individual is more than Rs 50,000.
While jewellery is taxable, a motor car given as a gift is not included in the definition of prescribed movable property and thus cannot be taxed.