Receiving These Gifts This Diwali May Increase Your Tax Payable
Receiving these gifts this Diwali may create additional tax liability for you
- Exchanging gifts with friends and relatives on the festive occasion of Diwali is a centuries-old tradition in India.
- These gifts can be cash, gold, silver, or any other electronic item.
- When you receive real estate for no consideration, it is treated as a gift or donation.
New Delhi: Exchanging gifts with friends and relatives on the festive occasion of Diwali is a centuries-old tradition in India and the next Diwali will not be any different either. These gifts can be cash, gold, silver, or any other electronic item.
However, be aware that receiving certain gifts on this festive occasion may result in additional tax burden for you. According to tax and investment expert Balwant Jain, gifts received during the year are taxed at the donee’s slab rate as “income from other sources” under section 56 (2) ( X) of the Income Tax Act 1961.
Mr. Jain added that not all gifts are taxed, however, and tax rules differ depending on the nature of the gift and who received it.
“If the total value of all gifts received in a year exceeds Rs 50,000, then they will be taxable according to income tax rules,” Jain said.
If the total value of all gifts received in a year is less than Rs 50,000, the gifts will be tax exempt.
Tax on property received as a donation
When you receive real estate for no consideration, it is treated as a gift or donation. This means that in return, you pay nothing to the donor. In such a case, the value of the property’s stamp duty will be considered the property’s value for tax purposes. However, if ownership is transferred with insufficient consideration, the value of stamp duty exceeding the value of the consideration is taxed.
For example, you paid Rs 10 lakh in exchange for a property, the stamp duty value of which is Rs 30 lakh, then Rs 20 lakh is considered the value of the gift and you will be taxed on that amount.
In the event that you receive money as a gift, the entire amount will be taken into account to arrive at the value of the gifts you have received. Likewise, if you receive jewelry or stocks as a gift, the fair market value of those items is taxable.
Donations are tax exempt in certain cases
Under the Income Tax Act 1961, gifts received from close relatives are exempt from tax, Jain said. In accordance with the Information Technology Act, the spouse, brother or sister of the donee, the brother or sister of the spouse, the brother or sister of one of the parents or in-laws, any ascendant or descendant in line, any ascendant or descendant of the spouse, spouse of the persons referred to above are all parents.
Gifts received from any of these people, regardless of the nature and value of the gift and the occasion on which the gifts are transferred, are tax-exempt, Jain added.
It can be noted that friends are not considered relatives, gifts received from them will be subject to tax if the total value of such gifts exceeds Rs 50,000 during a financial year.
“However, gifts received in marriage or transferred under a will or inheritance are exempt from tax when received from anyone, not just relatives,” Jain said. .