Did you receive an expensive gift from someone this Diwali? It could be an expensive watch, a rare painting, a piece of jewelry or even a pair of branded shoes. Although a gift is generally considered tax-free, its value is greater than ₹50,000, it is subject to income tax in the hands of the recipient.
Not many people know that any gift received on Diwali or otherwise is taxed in the hands of the recipient under the head ‘Income from other sources’ at normal tax rates under Section 56 (2) (vii) of the Income Tax Act from 1961.
“Gifts received on the occasion of Diwali fall under the purview of income tax. If the total value of gifts exceeds Rs. 50,000, the same is taxable. The gifts include cash, gold shares, etc. However, gifts given to family members under the Income Tax Act are exempt,” said Pratibha Goyal, a Delhi-based chartered accountant.
A donation is not taxable if the following applies:
1. You have received a gift from a family member.
2. You received a gift on the occasion of your wedding.
3. The donation was received under a will or through an inheritance.
4. Pending the death of the payer.
But what should you do if the gift is not in money but in kind?
“If the gift is in kind, it is the recipient’s responsibility to determine and disclose its value. And when the value of the gift is more than ₹50,000, you have to pay tax on that. It is noteworthy that when the gift is given by a family member, no tax is levied on it,” said Chetan Chauhan, a chartered accountant from Mumbai.
Here we repeat the most important points:
1. Gift amount: When the gift is more than worth it ₹50,000, you owe income tax.
2. Tax rate: The tax rate is determined by the tax bracket you fall under. The value of the gift is simply added to income and taxed according to the bracket. If you fall under the 30 percent tax bracket, you pay 30 percent on it.
3. Gift in kind: When the donation is in kind, it is the recipient’s responsibility to assess its value and report it on the tax return.
4. From a family member: When the gift is given by a family member, such as a brother or sister or parents, it is not taxable.
B. Sibling of the spouse and their spouse
C. Sibling of the parents and their partner
D. Direct ascendant line (parent, grandparents) or descendant (children, grandchildren)
E. The direct ascendant line of the spouse (parent, grandparents) or descendant (children, grandchildren).
