In the middle of the holiday season, know the tax rules on gifts
New Delhi: Exchanging gifts during the holiday season is extremely common in India. However, not many people know that gifts received during the holiday season may be subject to tax. Donations received during the year are taxed at the donee’s slab rate as “income from other sources” in accordance with Section 56 (2) (X) of the Income Tax Act 1961. Income.
Note that not all gifts are taxed and that tax rules differ depending on the nature of the gift and the person who received it. If the total value of all gifts received during a year exceeds Rs 50,000, then it will be taxable according to income tax rules. Monetary and non-monetary gifts would be included in the limit of Rs 50,000.
If the total value of all gifts received in a year is less than Rs 50,000, the gifts will be tax exempt. In the case of non-monetary donations, the value of donations received should be established and tax paid on those donations. But there are a few exceptions to this.
Donation tax rules:
1. When the gift is received from the employer: In India, most of the employers give gifts to their employees on various occasions during the year, such as Diwali, New Years, etc. According to the Income Tax Act, if an employer offers a gift certificate in kind or in cash for an amount less than 5,000 rupees. during the financial year, it is then fully tax exempt. However, if the amount of the gift exceeds Rs 5,000, then the full amount is treated as part of the salary and taxed as an âindirect benefitâ, according to its tax regime.
2. Gifts received from parents: Gifts received from parents are fully tax exempt with no limits, provided that parent falls within the definition of parent for the purposes of section 56 (2).
3. Gifts received from friends and other people: Gifts received from friends will be treated as income from other sources and taxed accordingly. However, gifts worth up to Rs 50,000 (whether at Diwali or any other festival) received in total during a financial year are tax exempt.
It should be added that when you receive real estate without any consideration, it is treated as a gift or a 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 the stamp duty exceeding the value of the consideration is taxed.
According to the Income Tax Act 1961, gifts received from close relatives are exempt from tax. In accordance with the IT law, the spouse, the brother or the sister of the donee, the brother or the sister of the spouse, the brother or the 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 persons, regardless of the nature and value of the gift and the occasion on which the gifts are transferred, are tax exempt. Since 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 in a fiscal year.
However, gifts received on the occasion of marriage or transferred under a will or estate are exempt from tax when received from anyone, not just parents.