Income Tax Rules: To make the occasion of Diwali special, not only do people give gifts to each other, but companies also give gifts to their employees. In such a situation, a big question arises whether we have to pay tax on these gifts as well (Tax on Diwali Gift)?
Income Tax Rules: The festival of Diwali is fast 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 do 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 have to pay tax on these gifts as well (Tax on Diwali Gift)?
Taxation on gifts in India started in 1958, but was abolished in 1998. In 2004, some rules were re-implemented under the Income Tax Act. According to this, gifts received by an individual or Hindu Undivided Family (HUF) are considered income and taxed if their total value exceeds a certain limit.
Which gifts are taxed?
Under Section 56(2)(x), if the total value of gifts in a financial year exceeds Rs 50,000, then it is taxable. This includes cash, cheques, bank transfers, jewellery, shares, land, house etc. If the total value of gifts in these categories is more than Rs 50,000, then it will be considered as income from other sources and will be taxed.
Tax exemption is available on these gifts
Gifts received on many occasions come under the purview of tax exemption. Let’s understand this.
Gifts received from relatives
Gifts received from relatives are exempt from tax at any value. This includes husband-wife, siblings, parents, children and in-laws. For example, if you get gold jewellery worth Rs 1 lakh from your parents on Diwali, then that gift will be tax exempt.
Gifts received at wedding
Gifts received on the occasion of marriage are also exempt from tax. That is, the gifts you receive at the wedding are not counted as 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, then it will not be taxed. But if it is more than that, then it will be taxed.
Property received through inheritance
If you get property through inheritance or will, then it will also not be taxed.
Gifts given to charity
If you give gifts to charity, then these are tax-free and you can get tax exemption under section 80G.
Tax on gifts received from the 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 form-
Cash gifts
If cash is given to an employee by the company, then it will be taxed. It will be considered like your income from other sources.
Non-cash gifts
If the value of the gift is up to Rs 5,000, then it is tax-free. If it is more than Rs 5,000, then the additional 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.
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