During the festive season, especially as Diwali 2023 approaches, the tradition of exchanging gifts is in full swing in India. These gifts, whether from employers to employees, sellers to customers, or friends to friends, come with potential tax implications. It’s important to be aware of the following key rules regarding gift taxation:
1.Gifts from Relatives: Gifts received from relatives, as defined by the Income Tax Act, are generally tax-exempt. These relatives include spouses, siblings, in-laws, and lineal descendants.
2.Gifts from Friends: Gifts from friends are considered “income from other sources” and become taxable when their value exceeds Rs 50,000 in a year. Gifts below this threshold are not subject to tax.
3.Marriage Gifts: Gifts received on the occasion of marriage are not subject to taxation.
4.Employer Gifts: Gifts from employers are taxable if their total value surpasses Rs 5,000 in a year. Gifts below this limit are non-taxable, while those above are considered “perquisites” and are taxed accordingly.
5.Taxable Gift Considerations: If a gift, whether movable or immovable property, is received for inadequate consideration, the difference between its consideration and the stamp duty value can be considered a taxable gift. However, this is exempt up to a value of Rs 50,000.
6.Immovable Property Gifts: Immovable property received without consideration by an individual or Hindu Undivided Family (HUF) is subject to tax if the property is a capital asset, as defined by the Income Tax Act, and the stamp duty value exceeds Rs 50,000.
It’s essential to understand these rules to navigate the taxation of gifts effectively.