Receiving these gifts this Diwali may create additional tax liability for you

 










Exchanging gifts with friends and relatives during the festive occasion of Diwali has been an age-old tradition in India and the upcoming Diwali is also not going to be anything different. These gifts could be anything ranging from cash, gold, silver, or any electronic item.

However, one should be aware of the fact that receiving certain gifts during this festive occasion may lead to an additional tax liability for you. According to tax and investment expert Balwant Jain, gifts received during the year are taxed as per the slab rate of the donee under ‘income from other sources’ as per section 56(2)(X) of the Income Tax Act 1961.

Mr Jain further said that all gifts are, however, not taxed and tax rules differ depending on the nature of the gift and from who it is received.

"If the aggregate value of all gifts received during a year exceeds Rs 50,000, then it will be taxable as per income tax rules," said Jain.

In case the aggregate value of all gifts received in a year is less than Rs 50,000 then the gifts will be tax free.

Tax on property received as a gift

When you receive an immovable property without any consideration it is treated as a gift or donation. It means in return, you are not paying anything to the donor. In such a case the stamp duty value of the property will be considered as the value of the property for taxation purposes. However, if the property is transferred with inadequate consideration, the stamp duty value exceeding the consideration value is taxed.

For instance, you have paid Rs 10 lakh in exchange for a property, whose stamp duty value is Rs 30 lakh, then Rs 20 lakh is considered as the value of the gift and you will be taxed on that amount.

In the case you receive some cash as gift, then the entire sum will be considered for arriving at the value of gifts received by you. Similarly, if you receive any jewellery or shares as gift, then the fair market value of such items is chargeable to tax.

Gifts are exempted from tax in some cases

According to the Income Tax Act 1961, gifts received from close relatives are exempt from tax, said Mr Jain. As per the I-T Act, donee’s spouse, brother or sister, brother or sister of the spouse, brother or sister of either of the parents or parents-in-law, any lineal ascendant or descendent, any lineal ascendant or descendent of the spouse, spouse of the persons referred above all qualify as relatives.

Gifts received from any of these people, irrespective of the nature and value of the gift and the occasion when the gifts are transferred, are exempt from tax, added Mr Jain.

It may be noted that as friends are not considered relatives, gifts received from them will be subject to taxation if the aggregate value of such gifts cross Rs 50,000 in a financial year.

"However, gifts received on the occasion of wedding or transferred under a Will or inheritance are exempt from tax when received from any person and not just relatives," said Jain.



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