1. Planning to give a big gift this festive season? Here’s when you may have to pay tax

Planning to give a big gift this festive season? Here’s when you may have to pay tax

The pre-diwali season has kicked off. And this is the perfect time to pamper your family or business associates or your employees with gifts.

By: | Published: October 13, 2016 10:39 AM
tax Any gifts received on marriage or as part of an inheritance are also tax free.

The pre-diwali season has kicked off. And this is the perfect time to pamper your family or business associates or your employees with gifts. While your reasons for gifting may be all wonderful, the tax department has put laws to make sure it does not become a strategy for tax saving.

Receiving Gifts

Those who receive large gifts have to be careful about paying tax on them. In some case gifts may be exempt from tax or sometimes a tax liability may arise. Let’s find out.

To test whether your receipt is taxable, keep these three things in mind:

Who is the giver?

What is the occasion?

What is the value of gifts received?

Who is the giver?

Gifts received from family are not taxable. So any gift received by you from your spouse or parents or brother or sister (or in laws), irrespective of its value or the occasion, is not taxable for you. Transfer of fixed deposits, gift of cash, or valuables, jewellery, are not taxable when these are given by your family. These gifts must be properly supported and their source must be traceable.

Many a times gifts are exchanged between couples, purely as a tax-saving mechanism. So if you decide to park your money in your spouse’s account when your spouse does not have taxable income, be careful. If the intention is purely tax evasion, such arrangements may attract tax department’s ire and clubbing provisions may apply. Clubbing means even though you have transferred the asset, its income may be included in your total income.

What is the occasion?

Any gifts received on marriage or as part of an inheritance are also tax free. But diwali gifts or birthday gifts may be taxed if they exceed the allowed limit. Do remember thought, if you earn any income from these gifts, that income shall be taxable in your hands.

What is the value of gifts received?

Usually you don’t have to worry about taxes on gifts. But the tax department has set the maximum threshold of total value of gifts you can receive. Beyond this limit tax shall have to be paid. You can freely receive gifts up to Rs 50,000 in total. This is the total value of all the gifts received by you. If your receipts exceed this value, the entire sum must be added under ‘income from other sources’ and tax must be paid on it. If you do not know the value of the gift, you can ask the giver for a receipt or get the gift valued. So if you have received a foreign trip or a piece of art as gifts, ask for receipts or find out their approximate value and include them in your return.

Giving gifts

Employers and businesses sometimes hope to enjoy the twin benefit of earning goodwill of the recipient as well as claiming the gift as a tax deduction. Careful caution must be exercised though in giving gifts and claiming those as business expenses. Lavish gifts which are not directly related to the business must not be claimed. Recently the Mumbai appellate tribunal denied a pharma business from claiming an overseas trip it sponsored for doctors for attending seminars.

The author is Chief Editor, ClearTax.com

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