Are Diwali gifts from employer, relatives, friends taxable? Here's a look at the norms
Diwali, when Indians passionately exchange gifts to greet each other, is around the corner. This is a period when one receives gifts from friends, relatives and employer, among others. But are the gifts tax-free under existing laws? Gifts are not necessarily tax-free, and may carry tax implications depending on their value and one's connection with the individual.
Section 56(2) of the Income Tax Act, 1961 lays down several norms for the taxation of gifts, and in which cases they are exempted. Here's a look at the norms. The gifts that one receives from friends are categorised under “income from other sources".
As a result, its value has to be added to one's income while calculating the tax. However, this rule comes into effect only if the gift received is of an amount higher than ₹50,000. If the gift amount is less than ₹50,000, then its does not attract any tax liability.
Also, since the festive period also leads to the wedding season in India, it is worth noting that gifts received from friends on the occasion of marriage do not carry any tax liability. The gifts received from the employer are tax free only if their cumulative amount during a fiscal year does not cross ₹5,000. For instance, one has received three gifts from an employer within a financial year, each valued at ₹2,000.
In such a scenario, the cumulative gift amount will add up to ₹6,000, making it liable for taxation. The amount, in the tax records, falls under “prerequisites" and accordingly attracts tax. If the gifts received from the employer are of a value less than ₹5,000, then no tax is required to be paid on the same.
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