Gifts received from non-relatives of above Rs 50,000 a year are taxable

Gifts from employer become taxable once their value exceeds Rs 5,000; bonus is also taxable

A great deal of gifting happens during the festival season, especially around Diwali. While enjoying these gifts, you must remember that gifts from many sources are taxable once their value crosses a threshold limit. And it is your duty as a taxpayer to pay tax on those gifts.

The Income-Tax (I-T) Act defines “gift” as any asset received without consideration, either in cash or in kind. Aditya Chopra, managing partner, Victoriam Legalis-Advocates & Solicitors says, “It can include cash, movable property, immovable property, jewellery, etc.”

Gifts from close relatives

Gifts received from close relatives are exempt from tax under Section 56 of the I-T Act. Relatives, for the purpose of such exemption, include parents, spouses, siblings, siblings of one’s spouse, siblings of one’s parents, and any lineal ascendant or descendant of the individual or the spouse.

Nikhil Varma, managing partner, Miglani Varma & Co–Advocates, Solicitors and Consultants, says, “Gifts received from specified relatives are not chargeable to tax irrespective of the quantum of the gift and the relative’s residential status.”

Be careful regarding the definition of family. Many relatives, whom you may assume to be in the list of those exempted, may not be included. For instance, gifts from cousins or siblings’ children are taxable when they exceed the threshold limit of Rs 50,000.

Gifts from friends  

Unlike gifts from close relatives, those received from friends are subject to taxation under the I-T Act. They are exempt only up to a limit of Rs 50,000 (including both cash and kind).

Ankit Jain, partner, Ved Jain & Associates says, “If a person receives more than Rs 50,000 in gifts, it needs to be declared in the tax return under the head ‘income from other sources’.”

Gifts in kind are only taxed if they include shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures, or any work of art.

One exception to this rule is gifts received during a wedding. On this occasion, gifts received by the bride and the groom (but not the couple’s parents) from non-relatives are also exempt from tax.

Explaining the Rs 50,000 limit, Pallav Pradyumn Narang, partner, CNK says, “Where the aggregate value of gifts received from all non-relatives, including friends or business acquaintances, exceeds Rs 50,000 in a financial year, the total value of the gift shall be chargeable to tax.” Here, the total value of the gift will be taxed, not the value above Rs 50,000.

Gifts in the form of gold from non-relatives are also taxed. Chopra says, “If you get gold as a gift in the form of gold jewellery, bullion, gold exchange traded fund (ETF) or gold mutual fund (MF), it shall be taxable at slab rate if its value on the date of gifting exceeds Rs 50,000.”  

Gifts in the form of gold from specified relatives are entirely exempt from taxation (with no monetary limit on the exemption).

Gifts from employer

Gifts received by an employee from her employer are taxable as perquisites under the head ‘income from salary’.

“Gifts below Rs 5,000 in aggregate during a financial year are exempt from tax,” says Narang. This would include gift certificates, hampers, and cash gifts.

Take one example. Suppose you received gifts worth Rs 5,000 during Diwali and Rs 4,500 worth during New Year. You will have to pay tax on Rs 4,500 at slab rate.

Chopra adds, “Your employer is required to withhold taxes from your salary on such gifts.”

Many companies give a Diwali bonus instead of gifting in kind. These bonuses are treated as being part of the salary. The bonus and other cash gifts are added to the employee’s income and taxed.

Liability is yours  

In India, the liability to pay tax on gifts lies with the recipient. Varma says, “It is the taxpayer’s responsibility to diligently record all the gifts received by her and make complete disclosure to avoid any issues with the tax department.” He adds that gifts have been misused for the purpose of tax evasion over the years.

Quick facts on taxation of gifts

• Gifts received from non-relatives on the occasion of a birthday are taxable once the threshold value of Rs 50,000 is crossed
• In the case of an immovable property received as gift from a non-relative, whose stamp duty value exceeds Rs 50,000, the entire stamp value will be taxed
• The I-T Act gives tax relief to taxpayers on financial help received from their employers and well-wishers for meeting expenses incurred on treatment of Covid-19
• Even on the occasion of a wedding, the recipient needs to maintain the names of donors to be able to substantiate the genuineness of the gift