Got Diwali gifts? Know tax implications

During Diwali people exchange gifts and sweets. However, it is important to note that not all gifts received during the festive season are exempted from income tax. Here are some income tax rules that must be kept in mind while receiving gifts during Diwali.

The Income-tax Act, 1961, specifies the limit above which gifts received during a financial year are taxed. Diwali gifts received by you will be taxed only if they are received from a non-exempted relative or a friend and the value of such gift exceeds Rs 50,000.

According to the income tax laws, gifts received from an employer will not be taxable if their value does not exceed Rs 5,000 in a given financial year. Further, bonuses (irrespective of the amount received) will also be taxable under the head salaries. The amount that will be taxable will be calculated by subtracting Rs 5,000 from the value of the gifts and then adding the amount of bonus received.

Section 56 (2) of the income tax Act provides a list of relatives whose gifts won't attract tax irrespective of the amount or occasion. These people are spouse, siblings, siblings of spouse, parents of individual, brother or sister of either of the parents, Lineal ascendant/descendant (and their spouses) of the individual - for example grandfather, grandmother and lineal ascendant/descendant (and their spouses) of the individual's spouse. Here one must note that cousin is not a relative exempted under the income tax laws. Hence, if the value of gifts received from the cousin exceeds the threshold, it will be taxable.

Under the income tax laws, a gift can be any one of the following
a) Any amount of money received without any consideration

b) Specified movable property received without any consideration.

c) Specified movable property received at a price lower than fair market value.

d) Immovable property received without any consideration.

e) Immovable property received at price lower than fair market value

Monetary gifts received on any other occasion other than a person's marriage, including Diwali, will be taxable at the hands of the receiver.
The definition of movable property covers shares/securities, jewellery, archaeological collections, drawings, paintings, sculptures, any work of art or bullion. Budget 2022 had amended the definition and added virtual digital assets (VDA) as well. VDA includes crypto assets, non-fungible tokens or any other asset specified as VDA.