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November 13, 2020

Received Gift During Diwali? Know Tax Implications

by CA Shivam Jaiswal in GST, Income Tax

Received Gift During Diwali? Know Tax Implications

Are gifts received During Diwali Taxable?

The festival of lights is around the corner. Diwali is an occasion where you exchange cash or gifts with your family and friends and spread positive vibes to your loved ones. Exchanging gifts on the occasion of Diwali is a part of Indian tradition. While presents are considered a token of love, have you ever thought of these gifts from an income tax perspective? The gifts you receive may not always be tax-free. Although the Gift Tax Act was abolished in 1998, all gifts received during Diwali may not be tax-exempt.

What do you mean by a gift?

  • A gift can be money received in the form of cash or cheque, immovable property (land or building), and movable property (gold, jewellery, or shares).
  • The Government founded gift tax in April 1958 regulated by Gift Tax Act, 1958 (The GTA) with an intention to impose taxes on giving and receiving gifts under certain specific circumstances.
  • Gifts in the form of cash, demand draft, bank cheques or anything having a state were covered.
  • Though, the GTA was abolished in October 1998 and made all gifts tax free. However, Gift Tax was reintroduced in a distinct form and included in the Income-tax provisions in 2004.

Let us learn on the income tax implications of gifts received at the occasion of festivals.

Monetary limit for exempt gifts

  • As long as aggregate of all the gifts does not exceed Rs 50,000, there is no tax liability for the recipient.
  • All the gifts whether received in cash or as gift voucher or in kind have to be considered for arriving at the threshold.
  • Any gift exceeding worth Rs 50,000 as received by an individual in a financial year is taxable under the head ‘Income from Other Sources’ and is taxed according to the individual’s tax slab. The monetary limit of Rs 50,000 is an aggregate limit.
  • For instance, if Mr A receives four gifts worth Rs 20,000 each from four different friends in a year, it means you are exceeding the tax exemption limit of Rs 50,000 and the aggregate amount of Rs 80,000 will be taxed, rather than the difference of Rs 30,000.

Gifts from Relatives

  • Diwali gifts received from relatives are fully exempt from tax without any limit, provided such relative comes under the definition of the relative for the purpose of section 56(2).
  • For income tax purposes, here is the list of relationships that will be considered as relatives:
    1. Husband or wife
    2. Brother or sister
    3. Spouse’s brother or sister
    4. Parent’s brother or sister
    5. Son or daughter
    6. Brother’s or sister’s spouse 
  • For instance, if you receive a gift worth Rs 3 lakh from your parents this Diwali, you won’t be liable to pay any tax.
  • It is important to remember that, Diwali gifts received from friends will be treated as income from other sources and will be taxed accordingly.
  • However, gifts (either Diwali or any other) up to Rs 50,000 received in aggregate during the financial year are exempt from tax.

Gifts in the form of immovable property

If the stamp duty value of the immovable property exceeds the consideration amount by a minimum of Rs.50,000, then the stamp duty is chargeable to tax. 

Diwali gifts or Diwali Bonus from employer

  • If you receive any gift voucher or token worth more than Rs 5,000 from your employer on Diwali, then it is treated as part of your salary and taxed according to your tax slab.
  • The tax exemption is limited to gift vouchers or tokens totalling less than Rs 5,000 in any given financial year.
  • Therefore, if you receive two vouchers totalling more than Rs 5,000 during a financial year then you will be taxed.
  • There is no tax exemption on cash given as a gift by an employer.

Tax Exemption of certain gifts

  • Gifts received on the occasion of marriage is not charged to tax.
  • Also, gifts received by way of will/inheritance and gifts received in contemplation of death of the donor are tax-free.
  • However, gifts received on any other occasions are considered for tax purposes.
  • Gifts received from the local authority and from any fund or institution are also exempt.

Is GST applicable on Diwali gifts?

Gifts are not defined in the GST law. In common parlance, a gift is made without consideration, is voluntary in nature and is made occasionally. Gifts upto a value of Rs 50,000 per year by an employer to his employee are outside the ambit of GST. However, gifts of value more than Rs 50,000 made without consideration are subject to GST, when made in the course or furtherance of business.

As per Schedule I, GST shall be levied on the supplies made even without consideration between distinct or related persons. In other words, free supplies/gifts between unrelated persons are not supplies, therefore not taxable.

As per the above points any sum received from relatives or on occasion of marriage, is not to be included under the head ‘Income from Other Sources’ while filing your taxes. There is no requirement to show these gifts in ITRs as it does not fall under the definition of Income chargeable to tax. However, if you get a property through a registered gift deed (wherein your PAN is quoted), you can show the value of the gift received as ‘Exempted Income’ in ITR. This is to avoid any scrutiny by income tax authorities in the future. Also, whenever you receive any gift it is prudent to have gift deed executed.

Gifting has always been seen as a way for people to express love and affection. With the increased focus on taxation, it becomes imperative to know its taxability, how to disclose it correctly, and maintain documents (gift deeds, property registration etc.) diligently.

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