Know how your diwali presents from totally different sources might be taxed

The Indian tax legal guidelines acknowledge the Indian tradition of exchanging presents between households and buddies. When these presents are exchanged between specified members of the family, on specified events or throughout the threshold restrict between non-family members, no tax is levied on the worth of the presents.

In the approaching days, India will witness the season of weddings and the Diwali pageant. It’s a season of giving presents by the employer to workers, buddies and households to the bride and groom, vendor to prospects, and so forth. Before you give or obtain a present, study in regards to the income-tax provisions on the taxability of the presents.

Section 56 of the Income-tax Act comprises provisions referring to the taxability of presents. Let’s see how this provision offers with several types of presents.

Gifts obtained from relative: Any reward obtained by an individual from his relative is fully exempt from revenue tax. In income-tax legislation, a relative from the closest household (partner, dad and mom, siblings, kids), in-laws, grandparents, grandchildren, moreover uncles and aunts can provide tax-free presents. However, receiving a present from a cousin or sibling’s kids might be taxable on crossing the brink restrict of ₹50,000.

Gifts obtained from the employer: Any reward obtained by an worker from his employer isn’t taxable if the combination worth of such reward is as much as ₹5,000 through the monetary 12 months. Where it exceeds, then the quantity exceeding ₹5,000 is taxable within the arms of the worker as perquisites beneath the top of ‘Income from salary’. Further, the bonus obtained by an worker on Diwali or in any other case can also be taxable as Income from salaries.

Gifts obtained on marriage: The presents a bride or groom receives on the event of their marriage are totally exempt from tax. The exemption might be claimed by the bride or groom solely and never their dad and mom. Further, the exemption might be allowed on the event of marriage, not on their anniversary or another ceremony.

Cash presents from buddies and others: If you obtain financial presents in money, cheque, drafts, and so forth. and the combination worth through the 12 months doesn’t exceed ₹50,000, the whole reward might be tax-free. However, if it exceeds the stated threshold, then the entire quantity is taxable and never simply the quantity exceeding ₹50,000.

Valuable presents from buddies or others: Income-tax legal guidelines search to cost tax on the gifting of sure beneficial belongings termed ‘movable property’. It means shares, securities, jewelry, archaeological collections, drawings, work, sculptures, any murals, bullion, and Virtual Digital Assets (bitcoin or NFTs). If you obtain a present of any movable property outlined above, and its combination honest market worth doesn’t exceed ₹50,000 through the monetary 12 months, then it shall be tax-free. If it exceeds the stated quantity, the whole worth of such movable asset shall be taxable beneath the top of revenue from different sources.

Receiving digital gadgets as a present: Electronic gadgets like cellphones, laptops, smartwatches, audio system, and so forth., aren’t lined throughout the that means of movable property. So, receiving a present of any digital merchandise from any individual is not going to give rise to a taxable occasion. However, suppose you might be receiving a present in the midst of working a enterprise or career. In that case, it shall be deemed to be a profit or perquisite, and the worth of such presents might be taxable as enterprise or skilled revenue. Further, will probably be obligatory for the donor giving a present to deduct tax at supply beneath Section 194R launched by the Budget 2022 on the worth of the reward.

Tax charges: If the presents are taxable within the arms of the recipient, they’re taxed as residuary revenue beneath the top of ‘income from other sources’. The tax on such revenue shall be charged as per the relevant slab charges.

Disclosure in Income-tax return: No disclosure shall be given within the Income Tax Returns (ITR) if the presents are tax-free, and it shall be disclosed in Schedule OS of the ITR Form whether it is taxable. Any non-disclosure of a taxable reward could appeal to a penalty between 50% to 200% of tax payable on revenue sought to be evaded.

Naveen Wadhwa is deputy normal supervisor at Taxmann and Ashish Gupta is deputy supervisor at Taxmann

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