Do You Need to Pay Tax on Diwali Gifts? Know the Rules

Last Updated: October 24, 2024, 17:58 IST

Section 56( 2 )( x) of the Income Tax Act lays out the laws pertaining to the tax of presents.

Diwali, the celebration of lights, is a time of enjoyment, occasion, and change of presents. Whether it’s cash, style jewellery, or numerous different helpful merchandise, providing and getting presents is a vital element of Indian society, particularly all throughDiwali However, from a tax viewpoint, plenty of individuals proceed to be unpredictable regarding the tax obligation ramifications associated to presents. Do presents obtained all through Diwali usher in tax obligations, and if that’s the case, what are the suitable laws?

Understanding the Basics of Gift Tax in India

In India, presents had been exhausted underneath the Gift Tax Act, 1958, but the federal authorities eradicated the Act in 1998. However, particular stipulations related to the tax of presents had been reestablished in 2004 underneath the Income Tax Act, 1961. According to those stipulations, presents obtained by a selected or Hindu Undivided Family (HUF) going past a selected value are considered as earnings and undergo tax.

Section 56( 2 )( x) of the Income Tax Act lays out the laws pertaining to the tax of presents. The stipulations relate to all type of presents, consisting of these obtained all through occasions likeDiwali Gifts can take differing types, akin to cash, movable or stationary constructing, and likewise financial instruments. However, there are particular exceptions and issues that each taxpayer should perceive to stop any sort of potential tax obligation accountability.

What Kinds of Gifts are Taxable?

Under Section 56( 2 )( x), the listing beneath sorts of presents are taxed if their collected value goes past Rs 50,000 in a fiscal 12 months:

1. Monetary Gifts: Cash, cheques, or monetary establishment transfers.

2. Movable Property: Jewelry, shares, and security and securities, bullion, artwork work, and so forth

3. Immovable Property: Land, constructions, or any sort of property.

If the entire value of presents in these teams goes past Rs 50,000 in a fiscal 12 months, the entire amount is considered taxed as “Income from Other Sources” and contributed to the recipient’s gross earnings.

Exemptions to Gift Tax

While the regulation mandates that presents going past Rs 50,000 are taxed, numerous exceptions can help receivers stop tax. The essential exceptions are as complies with:

1.Gifts from Relatives: Any current obtained from a “relative” is excluded from tax obligation, regardless of the price. As per the Income Tax Act, relations include:

• Spouse of the particular
• Siblings (bro or sis)
• Parents and grandparents
• Children (daughter or son)
• Siblings and mothers and dads of the accomplice
• In- legislations (boy’s different half or little woman’s hubby)

For occasion, in case you acquire gold style jewellery properly value Rs 1 lakh out of your mothers and dads all through Diwali, it’s not taxed because it drops underneath the exception of presents from relations.

2. Gifts Received on Special Occasions: Gifts obtained all through wedding ceremony occasions are moreover excluded from tax, regardless of that the benefactor is. However, this exception is restricted to wedding ceremony occasions and doesn’t relate to numerous different distinctive celebrations like birthday celebrations, wedding ceremony anniversaries, or occasions like Diwali.

3. Gifts from Friends or Non-Relatives: Gifts obtained from good pals or non-relatives undergo tax obligation if their full value goes past Rs 50,000 in a fiscal 12 months. If the price of such presents stays listed beneath the Rs 50,000 restrict, they don’t seem to be taxed.

4. Inheritances: Any constructing or money obtained by way of inheritance or a will isn’t handled as gross earnings. This consists of genealogical buildings gave by way of generations.

5. Gifts to Charitable Institutions: If you contribute presents to a philanthropic group or belief fund, they don’t seem to be exhausted, and also you may be certified for tax obligation reductions underneath Section 80G, relying upon the type of philanthropic firm.

Taxation of Employer Gifts During Diwali

It is pretty typical for corporations to supply presents to their workers members all through Diwali, akin to coupons, gizmos, or incentive repayments. The taxability of those presents depends on their value and sort:

1. Cash Gifts: If the corporate gives cash, it’s fully taxed as element of the workers member’s wage.

2. Non-Cash Gifts: Non- cash presents (akin to coupons, gizmos, or gadgets) valued roughly Rs 5,000 are excluded from tax obligation. If the price of non-cash presents goes past Rs 5,000, the surplus amount is contributed to the workers member’s taxed wage and exhausted in keeping with the suitable earnings tax obligation piece.

3. Bonus Payments: Any Diwali incentive paid by the corporate is considered element of the workers member’s wage and is totally taxed.

Recording and Reporting Gifts

It is vital to maintain paperwork of the presents obtained, particularly if they’re appreciable in value. In state of affairs the collected value of presents goes past Rs 50,000, it’s the taxpayer’s obligation to report these underneath “Income from Other Sources” when submitting their tax return (ITR).

Additionally, for high-value presents like constructing or deluxe merchandise, it is strongly recommended to document the purchases accurately, consisting of the benefactor’s data, to stop any sort of examination from the tax obligation authorities.

Conclusion

While Diwali is a interval of enjoyment and kindness, it’s crucial to stay educated regarding the tax obligation ramifications bordering presents. In India, presents are taxed in the event that they surpass Rs 50,000 in a fiscal 12 months until they originate from spared sources like relations or wedding ceremony occasions. As a liable taxpayer, you could perceive the exceptions and limits that use, making sure that you don’t by chance wind up with an unexpected tax obligation accountability. This Diwali, commemorate with love and pleasure, but moreover with a transparent understanding of your tax obligation tasks.

By being educated, you possibly can recognize your joyful interval stress-free whereas remaining licensed with the tax obligation legislations.

-The author is a authorized accounting skilled and MD of Neeraj Bhagat & &Co Views revealed are particular person.

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