Diwali and New Year are some of the key auspicious days that Indians celebrate with joy and laughter. Along with the happiness of celebrating these special days with loved ones, you get the opportunity to receive different types of gifts. But do you know that in certain scenarios the gifts you get during New Year's or Diwali are taxable as per law?
Keep reading to get a comprehensive idea about tax on Diwali gift, if any exemptions are applicable and the corporate gifting process.
Diwali and New Year Gifting Traditions
When it comes to enjoying festivities and traditions, Indians have a way of doing these grandly. From following rituals to giving gifts to loved ones, occasions such as Diwali or New Year hold a special place in everyone's heart.
However, the tradition of giving gifts during Diwali and other activities is not limited to only friends and family. A lot of companies make sure to give their employees something during Diwalis or New Year's as a token of appreciation.
However, if you are receiving gifts in such circ*mstances, you might become liable to pay tax in some specific cases. As per the Indian Income Tax Act, individuals receiving gifts from specified relatives are entirely exempted from tax, irrespective of the value. In case of receiving gifts from non-relatives, in a financial year, whose aggregate sum exceeds Rs.50,000, the total amount will be taxable.
Now let's get a detailed understanding of tax on Diwali gift.
Types of Gifts Covered
According to the Income Tax Act, a ‘gift’ is when someone gets money or property from another person or organisation without paying for it. In legal language, the giver is called the donor, and the person receiving the gift is called the donee.
From the point of view of tax on Diwali gift, the items that are classified as gifts as per the Income Tax Act are as follows:
- Receiving money through cash, draft, cheque, or bank transfer.
- Getting immovable property like land, buildings, or residential/commercial property.
- Receiving movable property such as jewellery, shares, bonds, paintings, sculptures, and so on.
Tax Implications of Diwali and New Year Gifts
On most occasions, giving and receiving presents is a significant element of Indian culture. Even though in most cases the aggregate amount of the gift is nominal, in some cases the value of the gifts becomes substantial. Hence to give a clear picture regarding the taxability of such gifts, the Income Tax Act, 1961 states the following:
Whether you get gifts from family members or non- family members make a lot of difference. To make things clear, the Income Tax Department has provided some rules to figure out what the income tax on the Diwali gifts received or given during festivals:
- If you receive gifts from non-relatives in a year, you won't have to pay income tax on them if the total value is up to Rs.50,000. But if it's more, let's say Rs.51,000 or above, then you'll have to pay income tax on the entire amount.
- If you receive any real estate properties, like houses or land, from anyone apart from your family, you'll need to pay income tax based on the property's stamp duty value if the stamp duty value is more than Rs.50,000.
- If you receive gifts like jewellery, shares, artworks, archaeological collections, silver, gold, or similar things in a year, and their total market value goes beyond Rs.50,000, you'll have to pay taxes on them.
Taxability of Gifts from Relatives
When you think about tax on new year gifts in India, the first thing that strikes is the gift received has to be from a non-relative. If it is from a relative the entire amount of the gift gets exempted from tax. But who are the relatives that are considered in such a situation?
Well, relative in case of analysing tax implications on gifts includes the following people:
For individuals -
- Parents of the individual
- Spouse of the person
- Sister or brother of the person
- Sister or brother of the spouse of that person
- Any descendant or ancestor of the individual
- Any descendant or lineal ascendant of the individual's spouse.
- Individual's brother or sister from either of the individual's parents
- Spouse of the individual referred to in (c) or (f)
For HUF (Hindu Undivided Family) -
- Any member of the HUF
Taxability of Gifts from Non-Relatives
If you are receiving gifts from any individual apart from the ones stated above will be considered as non-relative. Tax on new year gifts in India and other occasions will be applicable if you receive it from a non-relative. To understand the tax process, read below:
Type of Gift Received | Gift Tax Applicability | Taxable Amount |
Cheque, cash or bank transfer | The value of gift exceeds Rs.50,000 | The total amount of money which was given as a gift. |
Any immovable property acquired for inadequate consideration (i.e., property purchased for less than the Stamp Duty Value of the property) | The stamp duty value of immovable property gift exceeds purchase price and the difference between the stamp duty value and consideration is more than the higher of: (i) Rs.50,000 (ii) 10% of Consideration | The difference between the Stamp Duty Value and the gift property's purchase price is taxed. For example, if the Stamp Duty Value of the donated property is Rs.3 lakh and the purchase price is Rs.1.5 lakhs, the taxable amount is Rs.1.5 lakhs (Rs.3 lakhs - Rs.1.5 lakhs). |
Acquired immovable property like building, land, etc. (without making payment for it) | Stamp duty value of the gift exceeds Rs.50,000 | Stamp duty value of the property gift. |
Assets like shares, sculptures, jewellery, and paintings without making payments | Fair market value of the gift is more than Rs.50,000 | Fair market value of the gift. |
Assets like shares, sculptures, jewellery, and paintings for inadequate consideration. | Fair market value of the gift is more than the purchase price by Rs.50,000 or more. | The difference between the gift's fair market value, and its purchase price is taxed. For example, if the fair market value of a gift of jewellery is Rs.2 lakhs and the original purchase price is Rs.1 lakhs, the taxable amount is Rs.1 lakhs (2 lakhs - 1 lakhs). |
Tax Exemption for Gifts Received from Non-relatives
Even though most gifts received from non-relatives are taxed, there are certain scenarios, when the gift is not taxable as per law. Following are the examples of such situations:
- Money is received when someone gets married.
- Money received through a will or inheritance.
- Money is received while thinking about the death of the person giving the money.
- Money that you receive from a local authority as defined in Section 10(20) of the Income-tax Act.
- Money received from funds, universities, foundations, hospitals, educational institutions, trusts, medical institutions, or institutions mentioned in Section 10(23C). (Starting from Assessment Year 2023-24, this exemption doesn't apply if a specified person mentioned in Section 13(3) receives the money.)
- Money received from an institution or trust that is registered under Section 12A, 12AA, or Section 12AB. (Starting from Assessment Year 2023-24, this exemption doesn't apply if a specified person mentioned in Section 13(3) receives the money.)
- Money received by trusts, funds, institutions, educational institutions, universities, medical institutions or hospitals mentioned in Section 10(23C)(iv)/(v)/(vi)/(via).
- Money received as a result of the amalgamation or demerger of a company, or even reorganization of a cooperative bank under Section 47.
Taxability of Gifts from Employers
Employer gifts are not taxable if the total value in a year is less than Rs.5,000.
For example, if you receive three Rs.3,500 presents from your company in a year, the total gift value is Rs.10,500, and you must pay tax on it. This is classified as a ‘prerequisite’ in tax records and is taxed.
However, if the entire value of your employer's gifts is less than Rs.5,000, no tax on Diwali gift is due.
Final Words
Overall, while Diwali and New Year festivities in India are full of delight and traditions, it is essential to be mindful of the tax consequences regarding receiving gifts. The Income Tax Act specifies the taxability of gifts, distinguishing between those from relatives and those from non-relatives.
It is important to understand that tax on Diwali gift is very important. Therefore not disclosing the amount can result in severe actions against you. So keep yourself informed with all the notions by reading all the points discussed above.
