Income Tax on Diwali, Dhanteras 2021 Festival Gifts Received from Parents, Son, Daughter, Friends, Family, Relatives Explained

Some presents are taxable. Representative picture

Income Tax Rules for Diwali Gifts Received from Family Members and Friends: All of us wish to share presents with our family members on the event of Diwali or Dhanteras. Not simply sweets and goodies, we share presents within the type of money, gold and silver as properly.

However, not many people are conscious that a number of the presents, if not reported correctly, could draw the taxmen’s ire. According to Section 56 (2) of the Income Tax Act, presents obtained in a monetary year could be taxed as per the slab rate as ‘income from other sources. This article explains all that you need to know about tax implications for gifts received during festivals, or on any day during a financial year.

What kind of gifts are taxable?

Gifts that are received in cash and without any consideration, like goods or services in exchange, can be taxed.

According to Archit Gupta, Founder and CEO, Clear (formerly ClearTax), in the case of gifts in kind such as jewellery, bullion, sculptures, paintings, etc., they also get taxed at their fair market value if the same exceeds Rs 50,000.

“In the case of immovable property, if such property has been received without consideration, then the stamp duty value is chargeable to income tax if it exceeds Rs.50,000. However, in the event of immovable property being transferred with adequate consideration, then the stamp duty value will be taxed if it exceeds such consideration by Rs.50,000,” Gupta told FE Online.

The Income Tax Act states that a gift in cash from an employer is fully taxable in the hands of the employee.

What kind of gifts are not taxable?

The Income Tax Act 1961 has exempted gifts received from relatives.

Gupta said that according to the Act, a relative refers to the spouse of the individual, their siblings, their spouse’s siblings, their dad and mom’ siblings, any lineal ascendant or descendant of the person or their partner, and the spouses of all of the afore-mentioned individuals.

This means you’ll not need to pay any tax for those who obtain presents inside the household from your dad and mom, brother and his partner, sister and her partner, spouse/husband and youngsters and their spouses.

However, presents obtained from another particular person, together with buddies, are taxed in the event that they cross the Rs.50,000 restrict.

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Interestingly, presents obtained on the event of marriage ceremony, or those obtained as inheritance are exempted from tax.

“The only other exemption to gifts being exempt from tax, irrespective of who the giver is, is if the recipient is gifted on the occasion of their wedding or the gift is transferred by way of inheritance or under a will,” Gupta stated.

If the employer occurs to offer their worker a present in variety, then the present turns into taxable provided that the worth of the present is Rs 5,000 or larger.

Is it necessary to pay tax on such presents?

According to Gupta, presents in India are taxable in the event that they cross a sure restrict. It additionally relies upon on the particular person giving or receiving the present. Are they associated to one another?

“Section 56(2) of the Income Tax Act governs the taxability of gifts in India. According to this Section, if any person receives a sum of money exceeding Rs.50,000 in aggregate per annum as a gift, the entire amount will be chargeable to income tax. This means that if a person has received multiple gifts a year and they exceed Rs.50,000 in total, then the entire value will need to be reported while filing the income tax return for that year,” he stated.

Rs 50,000 is just not an exemption restrict. So, even for those who obtain a taxable present of Rs 50,001, your complete quantity will probably be taxed on the relevant rate.

“Taxpayers should keep in mind that Rs.50,000 is not an exemption limit. Hence, if the gifts amount to even Rs.50,001 in total, the entire amount becomes subject to tax at the applicable tax rate,” Gupta stated.

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