Gifts received in professional capacity are taxable

These need to be declared under income from business and profession

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Be cautious of the expensive gifts you receive at workplace during the festival season. While most don’t declare gifts received at work, some of them could be taxable. Though people don’t disclose non-cash gifts as nothing is recorded in the book of accounts, such gifts are taxable, says Vikram Ramchand, CIO and co-founder of Makemyreturns.com.

For example, if a sales and marketing manager receives a gift from an advertising company or an employee in the administrative department gets a gift from a vendor, they are supposed to disclose it in their income tax returns and pay relevant tax. The same goes for professionals such doctors, lawyers, and chartered accountants.

Such gifts are considered professional receipts or compensation over and above the money paid for the services rendered. They should be added to the income and taxed according to the slab. The receiver of such gifts need to find their market value before declaring them.

“Section 28 of Income-Tax Act lays down what is taxed as business income and includes the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession. The fair market value of such items/goods received by a business or professional should be added to the business income of the professional or business and tax paid on it,” says Preeti Khurana, chief editor, ClearTax.

She adds Section 56 of the Act gives the details of valuation principles for gifts. Take, for instance, jewellery or a painting. The receiver will need to consider either the invoice value or the fair market value.

But if the same person gives you a gift as a friend or in personal capacity, then the taxation will be different. Gift from personal contacts and distant relatives are free of tax up to Rs 50,000. Tapati Ghosh, partner at Deloitte Haskins & Sells, explains the Income Tax Act lists 10 different gifts that need to be declared and paid tax on when received from someone in personal capacity. These include cash, bullion, jewellery, shares, financial securities, drawing, paintings, and immovable property. These need to be declared under the head ‘income from other sources’ and taxed accordingly. The other popular items used as gifts, including mobiles, tablets and other electronic products don’t need to be declared if received in personal capacity.

Gifts are, however, not taxable only when the person receives it from close relatives. The Income Tax Act says these include spouse, siblings and their partners, siblings of spouse and their partners, brother or sister of either of the parents of the individual and any lineal ascendant or descendent of the person of his/her spouse. Also, if you are getting married, any gift received during the wedding is free from tax.