As the festive period arrives, we receive or give gifts, which could be chocolates or sweets, or expensive items such as jewellery, property, or a car. Gifts could be taxed at the receiver’s end.
Gifts, bonus from employer
If you receive a gift from your employer which is worth less than R5,000 in a financial year, it is exempt from income tax. There is no restriction on the type of gift, but the value of the gift should be less than R5,000 to avoid having to pay taxes. If the value of the gift exceeds R5,000, it is taxable in the hands of the employee. Bonus given during Diwali is also taxable in the hands of employees as per their tax slab.
Gift from relatives and friends
Gifts from family, relatives and friends within the limit of R50,000 in total in a financial year are exempt from tax. The value about the limit of R50,000 will be taxed as per slab. Such income is then treated as income from other sources. Gifts received from close relatives such as siblings, spouse, brother or sister of spouse, parents or parents of the spouse are completely exempt from income tax. Gifts to close relatives are exempt from tax, but any income earned from such gifts could be clubbed with the income of the giver. For example, a man gifts a property to his wife. She rents the property out and earns R2 lakh in rental income in a year. Such an income would be clubbed with the income of the husband for tax calculation.
Gift received on special occasions
Gifts received on special occasions such as marriage are exempted from tax. Gifts received as inheritance are also tax free. If you earn any income from such gifts, it would be taxable in your hand. You must maintain the records and paperwork of such valuable gifts.
To avoid disputes, gifts should ideally be received along with their details written by the giver. Movable property should be gifted with notarised stamp papers, whereas an immovable property should be accompanied with a registered gift deed. Once the immovable property is registered along with a gift deed in your name, you get the legal ownership and right to possession to such property.
The writer is CEO, BankBazaar.com