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Income Tax Rules: The festival of Diwali is approaching. On the day of Diwali, people worship Goddess Lakshmi, eat sweets and also give gifts to each other. To make this occasion special, not only people give gifts to each other, but companies also give gifts to their employees. This gift is sometimes in cash and sometimes in the form of some kind of goods or gift. In such a situation, a big question arises whether we will have to pay tax on these gifts also (tax on Diwali gifts)?
Tax on gifts in India was introduced in 1958, but was abolished in 1998. In 2004, some rules were re-enacted under the Income Tax Act. According to this, gifts received by an individual or a Hindu Undivided Family (HUF) are considered income and are taxed if their total value exceeds a certain limit.
Which gifts are taxable?
Under section 56(2)(x) if the aggregate value of gifts exceeds Rs 50,000 in a financial year, it is taxable. This includes cash, cheques, bank transfers, jewellery, shares, land, houses etc. If the total value of gifts in these categories exceeds Rs 50,000, it will be treated as income from other sources and will be taxable.
Tax exemption is available on these gifts
Gifts received on many occasions also come under the ambit of tax exemption. Let us understand this.
gifts received from relatives
Gifts received from relatives are exempt from tax at any cost. This includes spouse, siblings, parents, children and in-laws. For example, if you received gold worth Rs 1 lakh from your parents on Diwali, that gift will not be taxable.
wedding gifts
Gifts received on the occasion of marriage are also tax free. That means, wedding gifts are not counted in your income from other sources.
Gifts received from friends or non-relatives
If the total value of gifts received from friends or non-relatives is less than Rs 50,000, it will not be taxed. But if it is more than that, it will be taxable.
inherited property
If you have received property through inheritance or will, it will also not be taxed.
gifts given to charity
If you make gifts as donations, these are tax-free and you can get tax exemption under Section 80G.
Tax on gifts received from company on Diwali
On the occasion of Diwali, companies usually give gifts to their employees. The tax system on these gifts depends on their value and nature-
cash gift
If a company gives cash to an employee, it will be taxable. It will be treated like your income from other sources.
non-cash gift
If the value of the gift is up to Rs 5,000, it is tax-free. If it exceeds Rs 5,000, the excess amount is added to the taxable income of the employee.
bonus payment
Every Diwali, most companies give bonuses to their employees. This bonus is fully taxable.