Are Your Diwali Gifts And Bonuses Taxable?

Synopsis- Gifts are given to loved ones during Diwali. Even some businesses reward their workers with bonuses. Even though everyone enjoys receiving gifts, income taxpayers should be aware of a fundamental concept: whether or not a gift is taxable.

Indians are already getting ready for a lengthy holiday as Diwali approaches. One of the biggest events in the nation is the festival of lights. Gifts are given to loved ones during Diwali. Even some businesses reward their workers with bonuses. Even though everyone enjoys receiving gifts, income taxpayers should be aware of a fundamental concept: whether or not a gift is taxable. They must pay taxes on any financial gifts or Diwali bonuses.

According to Income Tax regulations, gifts are categorized from a taxation standpoint into the following categories: any amount received (monetary gift); specific movable properties (gift of movable property); specific movable properties received at a reduced price (i.e. for inadequate consideration); immovable properties received without consideration (gift of immovable property); and immovable properties acquired at a reduced price.

Although monetary gifts are tax deductible up to a certain amount per fiscal year, they are still subject to taxes.

Additionally, financial gifts from family members, such as a spouse, brother, sister, or set of parents, among others, are not subject to taxation.

Money received on the occasion of a person’s marriage; money received as an inheritance; money received in anticipation of the payer’s or donor’s death; money received from the local government; money received from any funds, foundations, universities, medical institutions, etc.; and money received as a result of a company’s demerger or amalgamation, among other things, are examples of financial gifts that are not subject to taxation in the case of HUFs.

Let’s understand if your Diwali gift is taxable

 The season of Diwali brings along with light, lots of gifts and joy. But these gifts could cost you- tax. Here’s a low-down on how presents from friends, relatives, and employers received during this festive season will be taxed.

 Gifts or vouchers received in a financial year shall be tax-exempt if their total amount is less than ₹5,000.

Any gifts you receive over ₹5,000 will be added to your income and taxed as per your tax bracket. For instance, if you get presents of around ₹5000 during Diwali and ₹3,000 again at Christmas, you will be required to pay tax on the gifts worth ₹3000, which is over Rs. 5,000.

“Some employers give Diwali bonuses instead of gifts. This will be considered as a part of their salary and charged to tax.

Diwali Bonus received from an employer is considered to be income from salary and is fully taxable.

In regards to gifts received from friends and family, the Gifts from family members are not subject to tax. Family members are explicitly mentioned in the income tax:

Spouse of all the people covered above

A friend or someone who isn’t on this list isn’t regarded as family. As a result, gifts from them will be taxed.

According to Section 56(2) of the Income Tax Act, gifts received during the year that total more than Rs. 50,000 in value, whether in cash or kind, are taxed. This section states that gifts up to Rs. 50,000 are tax-free; however, if this limit is exceeded, the entire gift value will be subject to tax.

Immovable Property Received as Gift

 A gift of land or a gift of a building received during the year will be taxed if the stamp duty value is greater than £50,000. The value of the stamp duty will be taxed.

No matter how much or how little a gift you receive for Diwali from your spouse, parents, grandparents, or siblings, it is not subject to tax. But it’s important to remember that any income made from investing this gift money will be subject to taxation following the laws that apply to that investment.

It further mentions that if the gift is from friends or distant relatives then such gifts are tax-free only if the amount is equal to or less than ₹50,000. If the gift exceeds ₹50,000/- then the entire amount of the gift will be taxed. Also, one should know that this ₹50,000 limit is an aggregate limit of all the gifts received in one financial year and not just Diwali gifts. If the aggregate amount of the gift crosses ₹50,000/- then the entire amount is taxable.

Taxpayers should know that the gifts are taxed as per their income tax slab. So, if a person is in a 30% tax bracket then these gifts will be taxed at 30%, Diwali festival will begin on October 22 with Dhanteras and will continue till October 26. The big day which is Lakhsmi Puja will be on October 24.

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