The festival of Diwali is all about love, light, joy, and togetherness. It brings people closer to celebrate their bond with each other and express their love on the auspicious occasion. To convey feelings, many of you usually prefer to say it with Diwali gifts. So, you might spend your money on expensive gifts to tell your loved ones how much they matter to you.
On the other hand, purchasing expensive Diwali gifts can come with a price. Did you know that the transactions of gifts are taxable? Perhaps, not! You are eligible to pay income tax on gifts if you exceed a specific limit. The Government of India introduced a Gift Tax in April 1958. Under the Gifts Tax Act (GTA), you (the donor) has to compulsorily pay 30% tax.
After Yashwant Sinha become The Union Finance Minister, he put an end to GTA in 1998. Later in 2004, the government introduced specific provisions and exempted tax payments for all the gifts bought for blood relationship.
If you’ve purchased gifts for these relationships, gifts wouldn’t be taxed:
- Husband-wife
- Son/daughter
- Grandparents
- Brother/sister
- Sister-in-law/brother-in-law
- Aunt/Uncle
Note: In case you violate the condition mentioned in the provisions, you will be applicable to pay taxes.
Here’s a glance at the provisions of GTA:
| Gift Type | Monetary Threshold | Quantum Taxable |
| Any amount without consideration | Sum>Rs. 50,000 | Total money received |
| Immovable property, such as land, building, and so on without any consideration | Stamp duty value>Rs. 50,000 | Stamp duty value of the property |
| Immovable property for inadequate consideration | Stamp duty value goes beyond the consideration by>Rs. 50,000 | Stamp Duty value – consideration
Illustration 1: ● Stamp duty value= Rs. 3 Lakh ● Consideration= Rs. 75,000 Therefore, the taxable amount will be Rs. 2.25 Lakh (stamp duty value goes beyond consideration> by Rs. 50,000)
Now, in the above example if consideration is Rs. 2,80,000. The taxable amount will be nil since the stamp duty is not above consideration by>Rs. 50,000 |
| The property, such as jewellery, sharings, drawings, etc. other than an immovable property without any consideration | Fair Market Value (FMV)>Rs. 50,000 | FMV of such a property |
| Any property besides immovable property for a consideration | FMV goes beyond consideration by>Rs. 50,000 | FMV – consideration (Refer the same example given above) |
Gifts are given on various occasions to one another, be it your family, relatives, or close friends. Before exchanging presents with them, let’s look at some of the gift options that are tax-free:
The following presents gifted on these events are tax-free:
- Weddings
- Received from local administrations, siblings, parents, relatives, educational institutions (under section 10 {23}), charitable organisations
- Given by will or inheritance
- If it is above Rs. 50,000.
Taxable gifts:
- All types of gifts including cash, real estate, gold, or any other valuable gift items. In case the cash does not exceed Rs. 50,000, it is not taxable.
After amendments were made in 2017,
“gifts received by any person are taxed in the hands of recipient under the head ‘Income from other sources’ at normal tax rates.”
All in all, gifts surely double the excitement, but it is essential to know the tax implications before purchasing them. Don’t be demotivated by looking at these tax rules while buying Diwali gifts or Bhaidooj gifts this festive season. Whether you are searching for regular or personalised gifts, keep these above-mentioned things in mind. Happy Diwali!