As the Diwali gift season is here, you may be wondering what kind of gifts may be subject to tax. This article aims to help you understand what kinds of gifts are subject to tax and what items are exempted.
According to experts, Diwali gifts received from relatives are fully exempt under the Income Tax Act (ITA). However, any gifts received exceeding Rs 50,000 received from a person other than the relative shall be taxable under the head “Income from other sources”.
Divakar Vijayasarathy, Founder and CEO, DVS Advisors, says the term “relative” of an individual from a taxation point of view consists of the following:
(A) spouse of the individual;
(B) brother or sister of the individual;
(C) brother or sister of the spouse of the individual;
(D) brother or sister of either of the parents of the individual;
(E) any lineal ascendant or descendant of the individual;
(F) any lineal ascendant or descendant of the spouse of the individual;
(G) spouse of the person referred to in items (B) to (F)
Further, the gifts received on certain special occasions are exempt from tax. Such special occasions include:
• Wedding
• As per a Will
• By way of inheritance or in contemplation of death of the payer
• Gift received from the local administration
• Gift received from any educational institution under Section 10 (23)
• Gift received from the charitable organisation
Vijayasarathy says the given circumstances do not include gifts received on the occasion of Diwali.
“Hence, gifts received from a non-relative on occasions other than those mentioned above, with a value exceeding Rs. 50,000, shall be subject to taxation,” he adds.
Experts say that the receipt of the following assets falls under the purview of gift taxation:
- Shares and securities
- Jewellery
- Archaeological collections
- Drawings
- Paintings
- Sculptures
- Any work of art
- Bullion
“In other words, gifts of assets other than those listed above, even if they exceed Rs. 50,000, would not be subject to tax. However, receipt of monetary consideration exceeding Rs. 50,000 or immovable property with a value exceeding Rs. 50,000 shall be also be within the purview of tax.
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