The festive season is all about celebrations, rituals and exchange of gifts. As Diwali approaches and the gifting season begins, remember that gifts received by you may not always be tax-free. A gift can be money, immovable property such as land or building and movable property such as gold, jewellery, shares, etc. Here’s the lowdown on taxation of gifts received from employers, friends and family.
Gifts From Employer
Vouchers, hampers and gifts below ₹5,000 in aggregate received during a financial year are exempt from tax. The value of gifts received over and above this will be added to your income and taxed as per the tax slab. For instance, if you receive gifts worth ₹5,000 during Diwali and ₹4,000 during Christmas, you will have to pay tax on ₹4,000 as per the tax rate applicable to you.
Instead of gifts, some companies pay Diwali bonus. This is considered a part of salary. The bonus is added to the income and taxed. Any other cash gift from the employer is also added to the income and taxed.
Gifts from Friends and Family
As per Section 56(2) of the Income Tax Act, if the aggregate value of gifts received during the year, whether in cash or in kind, exceeds ₹50,000, it is taxed. Gifts up to ₹50,000 are tax-free, but if this limit is breached, the entire amount is taxable. For instance, if you receive gifts worth ₹55,000 in a financial year, the entire amount will be taxed as income from other sources.
However, gifts from relatives—including spouse, brother or sister, brother or sister of the spouse, brother or sister of either of the parents, any lineal ascendant or descendant, any lineal ascendant or descendant of the spouse, spouse of your or your spouse's lineal ascendant or descendant—are non-taxable. A friend is not considered a relative. So, gifts from friends over the allowed limit are chargeable to tax.
Taxation of Immovable Property as Gift
Immovable property received during the year, either without consideration or for inadequate consideration, is chargeable to tax as follows:
If an immovable property is received without consideration and its stamp duty exceeds ₹50,000, the stamp duty value will be chargeable to tax.
If an immovable property is received for a consideration which is less than the stamp duty value, the difference between stamp duty value and consideration is chargeable to tax if the difference is more than the following two limits:
- ₹50,000; and
- 10% of the consideration
In both situations, the limit of ₹50,000 shall be checked for every transaction and not aggregate of all transactions.
Gifts received on the occasion of your marriage are tax-free. Gifts received under will/by way of inheritance and gifts received in contemplation of death of the donor are also tax-free.