As Diwali approaches, the tradition of exchanging gifts with friends and relatives is in full swing.
Whether it’s gifts from employers to employees or among friends and family, it’s important to be aware of the tax implications of these gifts.
Gifts received may or may not be subject to income tax, depending on various factors. Here’s a breakdown of the key tax rules related to gifts in India.
Definition of Relatives in Income Tax
Gifts received from relatives do not fall under the purview of tax. However, it’s crucial to understand which relationships are considered “relatives” as per income tax rules.
According to these rules, relatives include the individual’s spouse, siblings, and the siblings of the individual’s spouse.
Therefore, if someone falling under these relationships gives you a gift, it will not be subject to gift tax.
Taxation of Gifts from Friends
Gifts received from friends are taxable. If a friend presents you with a gift during Diwali or on any occasion, the value of that gift will be added to your income and taxed according to your income slab.
However, there’s a condition here. The gift will only be taxable if its value exceeds Rs 50,000 in a financial year.
If the gift’s value is less than Rs 50,000 during the financial year, it will not be subject to taxation.
It’s worth noting that gifts received on the occasion of marriage are exempt from tax, providing relief to individuals celebrating this special event.
Taxation of Gifts from Employers
Gifts from employers to employees are also subject to tax. However, there’s a condition in this case as well.
Gifts received from employers will be taxable only if their total value in a financial year exceeds Rs 5,000.
Gifts with a value of less than Rs 5,000 received from employers will not be subject to taxation.
It’s important to be aware of these gift tax rules to ensure compliance with income tax regulations.
Knowing when gifts are taxable and when they are not can help individuals avoid unexpected tax obligations and make informed decisions when giving and receiving gifts.
