During the festive season of Diwali, people buy gold, clothes, electronics and gifts, but these personal expenses usually do not get tax exemption. In India, personal festive purchases like clothes, sweets, decorations etc. are considered personal expenses, hence no tax benefits are available on them. Nevertheless, some gifting items are tax exempted by the government, especially when they are given in the form of cash, check or draft.
According to Section 56 of the Income Tax Act, gifts received from family members like husband-wife, brothers-sister, mother-in-law, father-in-law, etc. are not taxable. But if cash or gifts received from outside the family exceed ₹ 50,000 in a financial year, then the entire amount is considered taxable. This rule applies to both individuals and Hindu Undivided Families (HUF).
It is worth noting that if the total amount of gifts received during festivals exceeds ₹ 50,000, you may have to pay tax on the entire amount. Additionally, there are separate tax rules for business-related gifts and presents, where the expenditure may receive tax benefits with proper documentation and business purpose. Therefore, it is important to plan your expenses and understand the tax rules while making festival purchases, so that financial security is maintained along with the joy of the festival.
Thus, while personal purchases do not get tax exemption, there is an opportunity to save tax on gifts received from outside the family by staying within the limit of ₹ 50,000. Understanding the clear rules regarding gifting during festivals is beneficial for financial planning.