Everyone likes to give and receive gifts on Diwali. People share different kinds of gifts, including cash, sweets, clothes, gold jewellery, appliances and what not! Across the country, Diwali festival is considered an auspicious time to share costly gifts like cars and property. Even employers share gifts with workers in the form of Diwali Bonus.
While it is common to share gifts on Diwali, not everyone is aware that some costly gifts may have tax implications as well. If not reported properly, you may end up drawing taxmen’s ire. As per Section 56(2) of the Income Tax Act, gifts received in a financial year can be taxed as “income from other sources” as per the slab rate.
However, gifts from close family members are exempted. In this article, we take a look at the tax implications and exemptions on gifts like cash, gold, car, property etc.
“Taxation of Diwali gifts would generally depend upon the nature of the gift as well as the person gifting such cash, gold, car and property. Such taxation would be governed in accordance with Section 56(2)(x) of the Income Tax Act, 1961 (‘IT Act’),” says Dr Suresh Surana, Founder of RSM India, a Tax, Audit and Consulting group.
“Section 56(2)(x) of Income Tax Act, 1961 provides that any sum of money or value of property received without consideration or with inadequate consideration to be subject to tax in the hands of recipient as Income from Other sources,” he adds.
Income Tax on gifts would be subject to the following limits:
|Sr. No.||Gifts Received in the form of||Chargeable to Income-tax if|
|1.||Cash||Aggregate value exceeds Rs 50,000 in a Financial Year (FY)|
|2.||Movable Property without consideration||Aggregate Fair Market Value (FMV) exceeds Rs 50,000 in a FY|
|3.||Movable Property with consideration||Aggregate FMV exceeds the consideration by Rs 50,000 in a FY|
|4.||Immovable Property without consideration||Stamp duty value of exceeds Rs 50,000|
|5.||Immovable Property with consideration||Stamp duty value exceeds the consideration by Rs. 50,000 as well as the stamp duly value exceeding the consideration by 5%|
No Tax on Car Gift
The definition of property under the Income Tax Act also includes shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures, and any work of art or bullion.
Any of these gifts worth over Rs 50,000 would be chargeable to income tax. However, car is not covered within the scope of property. Hence, car gifts may not be subject to tax.
“As car is not exclusively covered within the scope of property, gift of Car is not covered under this section and may not be subject to tax in the hands of the recipient, says Dr Surana.
No tax on gifts from close relatives
Interestingly, gifts received from some “specified” relatives such as spouse, parents, siblings and their spouses are exempted from income tax.
“Section 56(2)(x) of IT Act provides that gifts received by an individual from any of the specified relatives would be exempt from income tax. Thus, the provisions of the IT Act provide for a specific definition of the term ‘relatives’ which includes spouse, brother or sister and their spouse, brother or sister of either of the parents, any lineal ascendant or descendant such as Parents, Grandparents, children, etc. and their spouse, as well as spouse of those aforementioned. Gifts received only from such specified relatives would be exempt from income tax,” says Dr Surana.