Value of gifts that come under the ambit of income tax
The Income-tax Act, 1961, specifies the limit above which gifts received during a financial year are taxed. Diwali gifts received by you will be taxed only if they are received from a non-exempted relative or a friend and the value of such gift exceeds Rs 50,000.
Sujit Bangar, Ex-IRS officer and founder of Taxbuddy.com, an ITR filing website, says, “To arrive at the taxable value, an individual needs to aggregate the value of the gifts received from non-exempted relatives and friends in a financial year. If the total value exceeds Rs 50,000, then you are required to report the taxable value of the gifts in your income tax return.”
Here is an example. Suppose you have two friends A and B. A gives you a birthday gift worth Rs 30,000 and B’s gift is worth Rs 25,000. If no other gifts are received in that financial year, the total value of gifts for the period is then Rs 55,000 (Rs 30,000 + Rs 25,000). This exceeds the limit of Rs 50,000 and the entire Rs 55,000 will be taxable in your hands.
Taxation of Diwali gifts received from employer
As this is a prominent festival, many employers give gifts to their employees. Sometimes the gift is apart from the Diwali bonus. According to income tax laws, gifts received from an employer will not be taxable if their value does not exceed Rs 5,000 in a financial year.
Bangar says, “If the value of gifts received from an employer exceeds Rs 5,000 in a financial year, then such gifts will be taxed as perquisite under the head income from salary. Further, bonuses (irrespective of the amount received) will also be taxable under the head salaries. The amount that will be taxable in your hands will be calculated by subtracting Rs 5,000 from the value of the gifts and then adding the amount of bonus received.”
Diwali gifts received from relatives
Section 56 (2) of the income tax act provides a list of relatives whose gifts won’t attract tax irrespective of the amount or occasion. These people are:
a) Spouse of individual
b) Brother/sister of individual
c) Brother/sister of individual’s spouse
d) Spouse of brothers/sisters
e) Individual’s parents
f) Brother or sister of either of the parents
g) Lineal ascendant/descendant (and their spouses) of the individual – for example grandfather, grandmother
h) Lineal ascendant/descendant (and their spouses) of the individual’s spouse
Bangar says, “Cousin is not a relative exempted under the income tax laws. Hence, if the value of gifts received from the cousin exceeds the threshold, it will be taxable.”
Types of gifts
Under the income tax laws, a gift can be any one of the following
a) Any amount of money received without any consideration
b) Specified movable property received without any consideration
c) Specified movable property received at a price lower than fair market value
d) Immovable property received without any consideration
e) Immovable property received at price lower than fair market value
As far as monetary gifts are considered, those received on the occasion of marriage are exempted from income tax. Monetary gifts received on any other occasion, including Diwali, will be taxable at the hands of the receiver.
The definition of movable property covers shares/securities, jewellery, archaeological collections, drawings, paintings, sculptures, any work of art or bullion. Budget 2022 had amended the definition and added virtual digital assets (VDA) as well. VDA includes crypto assets, non-fungible tokens or any other asset specified as VDA.
“This Diwali, if your friend gifts you a VDA or NFT or if a non-exempted relative gifts you a VDA or NFT whose value exceeds Rs 50,000, then such assets will be taxable in your hands. Further, the giver of the gift will be required to ensure that TDS has been deducted from such a gift. If the VDA or NFT is given by the specified relative, then the gift won’t be taxed. However, TDS obligations will be applicable,” adds Bangar.
Do note that no tax will be applicable if a movable property is not covered under the definition of gift. For example, if your friend has gifted you a TV or a motor car, then you are not required to pay any tax on it because these are not covered under the definition of movable property.