Diwali for everybody is like meeting their friends and exchanging gifts. The gifts can be sweets, dry fruits, and other valuable items like silver or gold coins. But did you ever thought that these gifts may have some tax implications too?? No… Everybody believes that these gifts are not taxable in their hands. You are wrong on this part.
Let’s discuss the tax implications that you need to meet if you are receiving Diwali gifts from your friends:
As we all know, the Gift Tax Act was abolished in 1998 but it was introduced again in 2004 with some new provisions where certain gifts were held taxable in the hands of the person receiving those gifts. It means the donor will not have to bear any tax implications. The new provisions say the total value of all gifts in the whole financial year if exceeds 50000/- whether received from any source or in any form will be taxable. No exemption is allowed and the total amount will be taxable. In any form implies gifts received in cash or in-kind or as gift voucher will be considered for checking the limit of 50000/-.
If a person engaged in business or profession, any gifts received exceeding the value of 50000/- will be treated as business income. This applies even to salaried people. The gifts received by them on Diwali if exceeds the prescribed value need to be reported under the head ‘Income from Other Sources’. However, gifts, if received from the employer, is exempt up to 5000/- in the hands of the employee.
While calculating the value of 50000/-, gifts received from certain relatives are not taxable. Relatives include spouse, brothers, and sisters of himself, brother, and sisters of a spouse. The definition of a relative is very vast but the persons mentioned above shall be excluded under gifts provisions. Moreover, if you are receiving a gift on marriage or inheritance, it will not be included while calculating the limit prescribed under the Gifts Act.
So now, those who used to believe that Diwali gifts are tax-free should disclose the whole value in their ITR if their gift value is exceeding the prescribed limit.