Diwali 2023: Tax Implications on Gifts - Relatives Enjoy Tax-Free Benefits, While Other Gifts Are Taxed!

Diwali is just a few days to go and many of you are wondering whether the gift will also be taxable on Diwali or not! With the Diwali gift-giving season upon us, you might be curious about which gifts could potentially incur taxes. This blog is here to clarify which gifts are taxable and which ones enjoy exemptions.

According to sources, Diwali gifts from relatives are completely tax-exempt as per the Income Tax Act (ITA). However, gifts exceeding Rs 50,000 from sources other than relatives are subject to taxation under the category 'Income from other sources'.

According to experts, gift taxation applies to the receipt of specific assets, which include:

1. Shares and securities

2. Jewelry

3. Archaeological collections

4. Drawings

5. Paintings

6. Sculptures

7. Any work of art

8. Bullion

Gifts of assets other than those mentioned above, even if their value is above Rs. 50,000, would not be taxed. However, receiving more than Rs. 50,000 in monetary consideration or property valued over Rs. 50,000, including immovable property, is subject to taxation.

Furthermore, some gifts received on specific occasions are exempt from taxes. These occasions include:

- Wedding

- Gifts received as per a Will

- Gifts received through inheritance or in anticipation of the payer's death

- Gifts from local authorities

- Gifts from educational institutions under Section 10 (23)

- Gifts from charitable organizations

However, it's important to know that these exceptions do not apply to gifts received during Diwali.

As a result, gifts from non-relatives on occasions not mentioned above, valued at more than Rs. 50,000, will be subject to taxation.

From a taxation perspective, the term 'relative' of an individual includes the following:

(A) The individual's spouse.

(B) The individual's brother or sister.

(C) The brother or sister of the individual's spouse.

(D) The brother or sister of either of the individual's parents.

(E) Any direct ancestor or descendant of the individual.

(F) Any direct ancestor or descendant of the individual's spouse.

(G) The spouse of the person mentioned in items (B) to (F).

Summing it up, 

As Diwali is around the corner, it's important to understand the tax implications of gifts. Gifts from relatives are tax-free, but those exceeding Rs 50,000 from non-relatives are taxable. 

Certain assets like shares, jewelry, and artworks are taxable as gifts, while others remain exempt. Special occasions like weddings and inheritances are exempt, but Diwali gifts do not qualify. Remember, a relative includes spouses, siblings, and in-laws for tax purposes. Stay informed and ensure compliance when exchanging gifts this Diwali.

Also Read: Section 54f of The Income Tax: Exemption Under Section 54F For Capital Gains
 

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