Komal, a renowned fashion designer, is famous across Pune city for designing stylish and elegant ladies wear.
She designs suits, dresses, and other clothing & accessories for the middle-to-rich class of society.
Once, Namrata, wife of a leading diamond merchant of the city, hired Komal to design a nightgown for a family function.
Komal designed a beautiful nightgown that Namrata wore to the function. At the function, Namrata was the centre of attraction. She was looking as beautiful as a barbie doll.
Namrata was so amazed by all the praise she received at the party that she gifted a diamond ring (worth INR 1,00,000) to Komal for designing the nightgown.
Will Komal have to pay income tax on this diamond ring?
Yes, since Komal has received this ring as a benefit because of her business, she will have to show it as a business income and pay tax.
Tax Provision: According to section 28(iv) of the Income Tax Act, “the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall be chargeable to income-tax under the head “Profits & gains of business or profession.”
Tax Tip: If you receive any gift (cash or kind) from your customers or anyone else as a benefit arising from your business or profession, you have to show it as a business income for the respective financial year. However, any gifts received from customers or clients at the time of your marriage are free from tax under section 56(2).
Think at least TWICE before accepting gifts from your customers or clients.
The author is a leading copywriter who helps brands and individuals persuade their prospects and communicate their brand story. Besides, he also helps busy influencers, agency owners, and freelancers file their taxes and manage their finances hassle-free.