The five days of Diwali celebrations are marked by an essential tradition of exchanging gifts in the form of sweets, clothes, jewellery, etc., by family and friends. However, in this joyous moment, one question that may arise is whether one would have to pay taxes on the gifts one receives. Here are the various norms for taxability of gifts in the hands of resident individuals.
The taxability of gifts in India is predominantly dependent on two factors. First, the relationship between the donor and the donee and second, the quantum or value of the gift. The law does not differentiate between gifts received for festivals and other occasions, except marriage. Gifts received during one’s marriage are exempt from tax with no restriction.
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Aggregate value
Generally speaking, gifts received, where the aggregate value in a financial year exceeds `50,000, are taxable in the hands of the recipient. However, for income tax purposes, only gifts received in cash, immovable property and specified movable property are taxable. Specified movable property means shares/securities, jewellery, archaeological collections, drawings, paintings, sculptures or any work of art and bullion. So, gifts such as a television set, vacation vouchers, etc., would not be taxable.
Gifts received from close relatives are exempt from taxation. Again relatives have been defined to mean, parents, spouse, siblings, siblings of spouses, siblings of either of the parents or any lineal ascendant or descendent of the individual or their spouse. Gifts received from specified relatives are not chargeable to tax irrespective of the residential status of the relative and quantum of the gift.
Gift provided by the employer to their employee is taxable as a perquisite under the head ‘income from salary’. However, if the aggregate value of such gifts is less than `5,000 then the amount is not chargeable to tax.
Taxability in the recipient’s hands
The taxability of gifts received from a business associate may be a tricky one. The taxability in the recipient’s hands will depend on whether there is a nexus between the gift’s value and the recipient’s business or profession. The responsibility of establishing this nexus lies with the tax officials and where the nexus is established, the value of the gift will be treated as consideration in kind and taxable as income from business or profession.
For a custom that is deep-rooted in our culture, the tax department has made provisions around taxation of gifts, respecting our sentiments. However, limits have been set so as to avoid any evasion of taxes or misuse of tax laws. Thus understanding the laws and ensuring that unwrapping of gifts does not come at a tax cost is imperative.
The writer is partner, Nangia Andersen India. Inputs from Neetu Brahma
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Treat or tax?
n The responsibility of establishing a nexus between the gift’s value and the recipient business lies with the tax officials
n If nexus is established, the value of the gift will be treated as consideration in kind and taxable as income from business
