According to the income tax guidelines, from a tax point of view, gifts are classified as — any income (gift of money); specified movable property (assignment of movable property); movable property designated at a reduced value (ie due to insufficient consideration); immovable property received without consideration (grant of immovable property); and immovable property at a reduced cost.

Financial donations are subject to tax, however, there are limited exemptions given within a financial year.

Also, the donation of money received by a person will not be taxed in the same way as money received from relatives who may be spouses, brothers, sisters, or parents, among others.

In case of HUFs, donations are exempt from tax — money received at the time of marriage; money received through inheritance; money received in contemplation of the death of the payer or donor; revenue from local authorities; income from funds, foundations, universities, medical institutions, others; proceeds from the liquidation or merger of one company with another.

Let’s see if your Diwali gift is taxable

Archit Gupta Founder and CEO of Clear said, “The season of Diwali brings light, lots of gifts and joy. But those gifts can be taxing. Below is how friends, relatives, and employer during the period.this leave period will be taxed.

About gifts from employers, Gupta said, “Gifts or vouchers received in a financial year are tax-free if their total amount is less. 5,000. Your gifts are more than enough 5,000 is included in your income and taxable in your income tax. For example, if you receive a gift from the neighborhood 5000 during Diwali and 3,000 again at Christmas, you have to pay tax on eligible gifts 3000, which is more than Rs. 5,000.

“Some employers give Diwali bonus instead of gift. It will be treated as part of their salary and charged to tax,” Gupta added.

Similarly, says Nidhi Manchanda CFP at Fintoo, “The Diwali Bonus received by the employer is considered as salary income and is fully taxable.”

Regarding gifts received from friends and family, the founder of Clear emphasized that gifts from family members are not subject to tax. Family members are clearly named in the income tax return:

Spouses of all persons mentioned above

Friends or people not listed here are not considered family members. Accordingly, their donation will be taxable.

If the total donations received during the year, whether in cash or in kind, exceed Rs. 50,000, they are liable to tax under section 56(2) of the Income Tax Act. Under this section, grant up to Rs. 50,000 is tax-free; however, if this threshold is breached, the entire value of the gift will be taxable.

Immovable property as a gift

Land or property received as a gift during the year is taxed if it exceeds the postal value 50,000. The tax will be taken on the value of the profit.

As Fintoo CFP explained, all Diwali gifts you receive from your family members like spouse, parents, grandparents and siblings are tax free irrespective of the value of the gift. . But it is important to note that the investment income of this donation will be taxed according to the tax law of that investment.

Manchanda also said that if the gift is from a friend or a distant relative, such gift is tax-free unless the value is equal or less. 50,000. If the donation exceeds 50,000/- the entire gift amount is taxable. Also, you should know that The limit of 50,000 is an aggregate limit of all gifts received in a financial year and not just Diwali gifts. If the sum of the gifts is crossed 50,000/- the entire amount is taxable.

“Taxpayers should be aware that gifts are taxed with income tax. Therefore, if a person is in the 30% tax bracket, these gifts will be taxed at 30%,” said Manchanda.

The festival of Diwali will start on 22nd October along with Dhanteras and will continue till 26th October. The main day of Lakhsmi Puja is October 24.

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