Diwali, the festival of lights, is a time of joy, togetherness, and, of course, gift-giving. Whether it's a shiny piece of jewelry, a box of sweets, or a generous cash gift, the festive spirit is in full swing. However, amidst all the merrymaking, not all gifts are tax-free. Chartered Accountant (CA) abhishek Walia sheds light on the nuances of tax implications for gifts received during Diwali. Here's why some gifts you get could attract a tax bill.
1. Cash Gifts: Always Be Cautious
Cash gifts are common during diwali, but large cash gifts can be taxable. According to the Income Tax Act, any gift received in cash or kind above Rs. 50,000 in a financial year could attract tax under the head “Income from Other Sources.” While smaller gifts from close family members are usually exempt, gifts above this limit from non-relatives are subject to tax.
2. Jewelry and Property Gifts: Beware of the Fair Market Value
Diwali often sees the exchange of jewelry or even properties between family members or business associates. The tax implications for such gifts are determined by their fair market value. If the value of a gift exceeds Rs. 50,000, it will be taxed, unless it is given by a close relative (as defined under tax laws, such as parents, siblings, or children).
3. Gift Vouchers: Small Yet Taxable
Gift vouchers or gift cards are also quite popular during Diwali. While receiving a small-value gift voucher might seem harmless, anything above Rs. 50,000 in a year, whether in one or multiple vouchers, is subject to taxation if received from a non-relative.
4. Sweets & Other Consumables: No Tax, But watch for Large Quantities
Though sweets, dry fruits, and other consumables are the most common diwali gifts, there’s typically no tax on these items. However, if the value of gifts, including sweets and consumables, exceeds the Rs. 50,000 threshold in a year, it could be taxable.
5. Gifts from business Partners: Subject to GST
Gifts given by business associates or partners could also attract Goods and services Tax (GST). If the gift is in the form of goods or services and the value exceeds Rs. 50,000, businesses must pay tax on the fair market value of the gift, which could affect both the giver and receiver.
6. Gifts from Employers: Know Your Limits
Gifts received from employers during diwali are often seen as a token of appreciation. However, tax exemptions apply only if the value does not exceed Rs. 5,000. If the gift exceeds this amount, the excess is taxable as income in the hands of the employee.
7. How to Calculate Tax on Gifts
The tax on gifts is calculated based on their fair market value. If you receive multiple gifts from different people, their cumulative value is considered. Gifts from close relatives are exempt, but anything above the Rs. 50,000 limit from non-relatives may be taxable. Always keep a record of the value of each gift received during the year to avoid surprises when filing taxes.
8. Exemptions You Can Rely On
While gifts from relatives (such as parents, siblings, or children) are exempt from tax, there are still some gray areas to consider, such as determining whether the relationship qualifies. Also, gifts given on occasions like weddings or festivals may fall under different tax rules, so understanding the distinctions is important.
Final Thought: Keep It Light and Clear
While diwali is a time to enjoy the company of loved ones, exchanging gifts, and spreading happiness, it's also important to be aware of the tax obligations that can arise. By understanding the tax laws, you can ensure that your festive celebrations remain stress-free, and you don’t end up with any unwelcome surprises come tax season.
Disclaimer:
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All information provided is for general informational purposes only. While every effort has been made to ensure accuracy, we make no representations or warranties of any kind, express or implied, about the completeness, reliability, or suitability of the information contained herein. Readers are advised to verify facts and seek professional advice where necessary. Any reliance placed on such information is strictly at the reader’s own risk..jpg)
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