Receiving gifts tends to make every person content. To make one’s close to and dear ones content, hence, gifting has come to be a component of Diwali celebrations. Not only to relatives and neighbours, but gifts are provided also by employers to their workers, company homes to prominent consumers, and so forth, which has come to be a norm throughout the festival of light.
“Diwali is one of the most celebrated festivals of India. The festival is celebrated not only in India but also in various other parts of the world. During this festival, people share their happiness by way of exchanging gifts. However, there are chances that such gifts may unknowingly attract income tax provisions. Thus, one must take into consideration the tax consequences arising from such gifts to thoroughly enjoy the festivities,” says CA Dr. Suresh Surana, Founder, RSM India.
Thus, getting also a lot of gifts may well also attract taxes.
Dr. Surana discusses the relevant provisions of the Income Tax Act, 1961 (“the IT Act”) applicable to the taxation of gifts.
A present may well be in the type of money, house or any other type. However, the IT Act offers with the taxation of such gifts which are in the type of money, movable house or immovable house.
Taxability of Cash Gifts
Cash gifts are exempt from tax exactly where the quantity of present is upto Rs 50,000. However, exactly where the quantity of money present is higher than Rs 50,000, then the complete quantity of such present would come to be taxable in the hands of the recipient of the present.
Such threshold of Rs 50,000 would be determined by taking the aggregate worth of gifts into consideration as opposed to the person worth basis. For instance, suppose a individual has received gifts from 4 unique people amounting to Rs 20,000 each and every. In such a case, although the person present quantity does not exceed Rs 50,000, the complete quantity of present would be topic to taxation in the hands of the recipient due to the fact the aggregate quantity has currently exceeded Rs 50,000.
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Cap on Cash Gifts
It is also pertinent to note the applicability of section 269ST below the IT Act which would restrict the donee to obtain any money present amounting to Rs 2 lakh or much more otherwise than by way of account payee cheque / bank draft or electronic clearing program by way of a bank account or by way of any other prescribed electronic mode. Any violation of the mentioned provision may well attract penalty and therefore, the exact same requirements to be taken into consideration when getting any present.
Taxation of Property as Gifts
Immovable house constitutes land, creating or each whereas movable house would constitute shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures, any perform of art, or bullion and transfer of any other house. Further, taxation of gifts in the type of movable or immovable house depends on whether or not such gifts are transferred devoid of consideration or for inadequate consideration.
In case the movable or immovable house is gifted devoid of any consideration, the complete worth of the house would be brought below the ambit of taxation, supplied the exact same exceeds the threshold of Rs. 50,000.
Whereas in case of house for which component consideration has been derived or which is gifted for an inadequate consideration i.e. actual consideration is much less than the complete worth by an quantity that exceeds Rs 50,000, then the differential quantity involving the complete worth and the actual consideration shall be subjected to tax below the head ‘Income from other sources’. However, in case of an immovable house transferred for an inadequate consideration, such present would be topic to taxation only when an extra situation of the stamp duly worth exceeding the consideration by 5 per cent or much more is fulfilled.
In case of present of movable house, the complete worth of consideration shall be the Fair Market Value of such movable house whereas in case of present of immovable house, such complete worth shall be the stamp duty worth which would be derived in accordance with the stamp duty reckoner prices.
Taxability of Gift from Employer
Gift from employer as present voucher or money till Rs 5,000 would be tax exempt in the hands of the workers. In case the quantity exceeds Rs 5,000, then the complete quantity shall be taxable as perquisites in the hands of the workers.
Exchanging gifts is an integral component of the Diwali occasion. It is pertinent to note that exactly where the money present is upto an quantity of Rs 50,000, such present would not be chargeable to tax. Moreover, present from specified close relatives would also be tax-exempt in the hands of the recipient.
When No Tax is Levied on Gifts
There are specific prescribed scenarios exactly where no tax would be levied on such gifts irrespective of the threshold. Such prescribed scenarios would incorporate gifts received from any relatives, on the occasion of marriage, below a Will or by way of Inheritance, in contemplation of death of the payer of such present, from any prescribed Local Authority, Trust, University and so forth.
In accordance with the explanation to Section 56(2)(vii), the expression “relative” would imply:
(i) in case of an individual—
(A) spouse of the person
(B) brother or sister of the person
(C) brother or sister of the spouse of the person
(D) brother or sister of either of the parents of the person
(E) any lineal ascendant or descendant of the person
(F) any lineal ascendant or descendant of the spouse of the person
(G) spouse of the individual referred to in products (B) to (F) and
(ii) in case of a Hindu undivided household, any member thereof.
Diwali gifts provided by any relative would not be topic to tax irrespective of quantity exceeding the threshold. In other situations, the present would be taxable below the head “Income from Other Sources”. The recipient of the present would be necessary to disclose the exact same at the time of filing the return of revenue.