Wednesday, 7 November 2018

Received a Diwali gift or Bonus from Office, Relative or Friends? | Find out if it is taxable |

Remember to discloses your gifts while filing your Income tax return(ITR). Check if you received a Diwali gift from from

i. Your friends,
ii. Relatives or
iii. Your employer is taxable.

Despite the fact that in 1998 the Law on taxes with gifts was abolished, all gifts that you receive during Diwali or any other festival are not tax exempt. Not only do you have to declare all gifts when you file your tax return, but you can also pay income tax on gifts based on your tax slabs.

It is important to understand which gifts are taxed and which are not.

1. Tax Liability on Diwali gift or Diwali bonus from employer

If you receive from your employer a gift voucher or token with a value of more than Rs 5,000 of any ceremonial occasion such as Diwali or New Year, it is treated as part of your salary and is taxed in accordance with your tax return slabs.

The tax exemption is limited to gift vouchers or tokens for a total of less than Rs 5,000 in a given financial year. Therefore, if you receive two coupons for a total of more than Rs 5,000 during a financial year, you will be taxed.

There is no tax exemption in cash given as a gift by an employer. Mistry points out that even if he gets Rs 2,000 in cash from his employer, he is subject to taxes as salary income.

2. Tax Liability on Diwali gift from friends: 

The tax-free limit in this case is Rs 50,000 per year. If the total amount of gifts received during the fiscal year exceeds Rs 50,000, then it is considered income from other sources and is taxed according to your tax slabs.
The Income Tax Act of 1961 provides that a exemption of 50,000 rupees is aggregate. For example, if you get three gifts of 30,000 Rupees each, you violate the exemption limit of 50,000 rupees and you will be taxed on all 90,000 rupees instead of 40,000 rupees. 

3. Tax Liability on Gifts from relatives:

Gifts received from family members are fully exempt, but any income from this gift is taxed in the hands of the donor.
To this end,
relatives were identified as 
  • Spouse, 
  • Siblings of self/spouse, 
  • Parents/grandparents of self/spouse, etc 

For example, if you donate 1000 rupees to your wife in Diwali or at any other time of the year, she will not have a tax on payment. But any income derived from this gift, such as interest or return on investment, will be taxed on your tax returns.
However, if you receive a gift from someone on the occasion of your marriage or as part of a will, then he is exempt from tax.

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