As Diwali approaches, there is more talk of gifts. Actually, there is a trend of giving gifts on this occasion. People give many things as gifts ranging from gold jewellery, coins or bars. But, most people do not know that not all gifts are out of the tax net. Therefore, before receiving and giving gifts on Diwali, it is important to know the tax rules related to it.
Gifts exceeding the prescribed limit are subject to tax
Income Tax Act Section 56(2)(X) of the Income Tax Act mentions the rules for tax on gifts. It says that if the value of the gift exceeds the prescribed limit then tax will be levied on it. If you give gifts to any non-relatives, then gifts worth up to Rs 50,000 in a financial year will not be taxable.
No separate tax rules for gifts on the occasion of Diwali
Alay Rajvi, managing director of Accord Juris, said, “Gold gifts do not get any exemption on Diwali. The same rules apply to gifts received from non-relatives on Diwali as are applicable to general gifts. This means that if the value of all gifts taken together in a financial year is up to Rs 50,000, then it will not be taxed.”
Gifts worth more than Rs 50,000 are subject to tax
Ritika Nayyar, partner, Singhania & Company, said that if the market value of gifts exceeds Rs 50,000, the entire amount will be taxable. This tax will have to be paid by the person who has received this gift. The value of the gift will be treated as ‘income from other sources’. Gift will be charged on this as per the tax slab of the person who has received this gift.
Gifts received from special relatives are out of the scope of tax
Supreme Court lawyer Tushar Kumar said, “Gifts received from certain relatives are tax-free. Such relatives include parents, spouse, siblings. If you receive a gift from any of these relatives, it will not be taxed, no matter what the value of the gift.” Since the trend of giving gold or silver jewelery on the occasion of Diwali is very common among close relatives, hence they do not need to worry about tax on the gift. But, it is important to keep in mind what is your relationship with the person giving the gift.
Different tax rules for gifts received from employer
Gifts received from the employer come under ‘Income from Salaries’. “Gold vouchers up to Rs 5,000 received from an employer are not taxable. But, if the value of the gift is more than Rs 5,000, it will be taxable. The employer will have to include the same in Form 16 and deduct TDS on it,” said P Narang, partner at CNK. It is important to understand and remember these rules. If you do not declare taxable gifts in your income tax return, you may be penalized.