Any Financial Gift You Receive This Diwali May Be Taxed: What You Need To Know

Diwali is the season for gifts. However, any financial gift that you receive may have tax implications. Let us take a look. 

Section 56 of the Income-tax Act governs the taxability of gifts. Here's how the provision addresses different types of gifts. 

Gifts Received From Relative

“Any gift received from a relative is fully exempt from income tax. For tax purposes, "relative" includes the nearest family members such as a spouse, parents, siblings, children, in-laws, grandparents, grandchildren, uncles, or aunts,” says Rahul Singh, senior manager, Taxmann, tax and corporate advisor. 

However, gifts from cousins or siblings' children are taxable if the total value exceeds Rs 50,000.

Gifts Received From The Employer

Gifts received from an employer are exempt from tax if the total value does not exceed Rs 5,000 in a financial year. If the value exceeds this limit, the excess amount is taxable as a perquisite under the "Income from Salary". Additionally, any bonus received from the employer, including festive bonuses like Diwali bonuses, is taxable as part of Income from Salaries.

Gifts From Friends Or Non-Relative

“Monetary gifts received in the form of cash, cheques, drafts, etc., are tax-free if the total amount in a year is Rs 50,000 or less. However, if the value exceeds this threshold, the entire amount becomes taxable, not just the amount above Rs 50,000,” says Singh. 

So, if you receive mutual funds worth Rs 50,000 from a relative or a non-relative it is tax-free. However, if you receive Rs 75,000 it is tax-free when received from a relative and the entire Rs 75,000 is taxable when received from a non-relative. 

What Is The Tax For Different Financial Gifts?

If gifts are taxable in the recipient's hands, they are treated as residuary income under the category "Income from Other Sources" and taxed according to the applicable income tax slab rates.  

“No disclosure is required in the Income-tax return for tax-free gifts. However, if gifts are taxable, they must be reported in Schedule OS of the ITR Form. Failure to disclose a taxable gift may result in a penalty ranging from 50 per cent to 200 per cent of the tax due on the undeclared income,” says Singh.