Is Your Diwali Gift & Bonus Taxable: Find Tax Implications
Finally, It’s that time of the year, “DIWALI,” the festival of lights and one of the major celebrations in the country. We can also say gifting season is here as exchanging presents is a common practice in India during this time.
Now, if you have stumbled upon this blog post, it is safe to assume that you have received Diwali gifts and bonuses and are finding out if they are taxable. Right? If yes, then this blog is for you! Here, we will discover if bonuses or monetary gifts are liable for taxes. Also, some strategies at the end of this guide will help you minimize some tax impact on Diwali sifting! Keep reading till the end!
Without any further ado, let’s get started!
Before we move forward, here is some quick information!
The tax treatment of gifts, whether during Diwali or for any other occasion, received by an individual or an HUF, is governed by Section 56(2) of the Income-Tax Act, 1961.
Gifts Categories Classification
According to Income Tax guidelines, gifts are classified under the following categories from the taxation point of view.
Monetary Gift: Any amount of money received without consideration.
Movable Property Gift: Specified movable properties awarded without consideration or acquired at a reduced price.
Immovable Property Gift: Specified immovable properties awarded without consideration or acquired at a reduced price
Taxation of Gift Money
If the aggregate worth of the monetary gifts (gifts or vouchers) received in the financial years exceeds ₹ 50,000, then it will be taxed according to the tax slab. However, there is an exception. If the gifts are received from individuals classified as "relatives," that includes spouse, siblings (of the individual or their spouse), siblings of either parent, any direct ancestors or descendants of the individual or their spouse, or the spouses of any of the family as mentioned earlier members. Although a stepbrother or cousin does not come under the “relative” category.
Further, it is worth noting that ₹50,000 is an aggregate limit applicable to all gifts received in a particular financial year, not just Diwali gifts.
Credit Card Or Reward Points As a Gift
A credit card company may provide reward points and cashback to the cardholder as a reward. This can be further used to purchase on various shopping sites and stores.
Let's imagine a situation. If your friend, Ram, uses his credit card to buy you a gift, and he pays for it, you might end up dealing with gift taxes. If he gets some cashback on his credit card and uses it to buy something else for you, that could also mean gift taxes.
But here's the catch: if he gets a discount and pays less for the original gift, that discount doesn't lead to gift taxes. It's a bit like trying to figure out a puzzle, but knowing these details can help avoid any surprise tax issues.
Gifts From Employers
Gifts or vouchers received from employers in a financial year will be tax exempted if their total amount if their total value is less than ₹5,000. But if it goes beyond that ₹5,000 mark, the extra amount will be added to your income, which will become taxed according to the income slab.
Let’s understand this more with an example.
You receive gifts worth ₹5,000 for Diwali and another ₹4,000 for Christmas. The total will be ₹9,000. In this case, you have to pay taxes on the ₹4,000 as it has crossed the ₹5,000 limit.
Also, remember that if your employer gives you a bonus for Diwali instead of gifts, that gets treated as part of your salary and is taxable accordingly.
Taxation of Movable Property As a Gift
The movable property included shares, jewelry, art collections, and modern additions like Virtual Digital Assets (cryptocurrencies and non-fungible tokens/NFTs). If an individual receives such property without consideration and the total fair market value of these assets in a financial year goes beyond Rs. 50,000, it becomes subject to taxation.
Similar to monetary gifts, the tax treatment varies when the property is received from specified relatives, with specific exemptions and guidelines in place.
Some Useful Strategies to Avoid 'Gift Tax'
One of the most effective ways to save gift taxes is to avoid receiving these in the form of cash or property exceeding ₹50,000. But still, if you receive such gifts, investing the gifted amount is advisable in the following government schemes.
Public Provident Fund (PPF)
Employees Provident Fund (EPF)
National Savings Certificate (NSF)
Children’s Education Fees
Life Insurance Premium
Post Office deposits
Under Section 80C, you can claim up to ₹1.5 lakhs tax deduction by investing in the above-mentioned schemes.
Under Section 80D, you can save taxes by investing in health insurance plans. The maximum tax deduction is ₹25000 for citizens under 60, and for senior citizens, it is ₹50,000.
If you want to do something for a social cause, then you can donate to qualified charitable organizations. It can be a win-win situation as it will be tax-deductible and reduce your overall tax liability.
However, tax laws are complex and subject to change. That’s why consulting with a KarrTax tax professional or financial advisor is suggested to make the right decisions and enjoy the best tax benefits.
Frequently Asked Questions (FAQs)
1. Are Diwali gifts taxable?
Whether a Diwali gift is taxable or not depends on certain circumstances.
If the value of a monetary gift such as cash, cheque, or bank transfer exceeds ₹50,000.
If Immovable property’s stamp duty value, such as land, building, etc., without consideration exceeds ₹50,000.
If any property (jewelry, shares, drawings, etc.) fair market value (FMV) exceeds ₹50,000.
2. How To Minimize Tax Impact On Diwali Gifting & Strategies?
Here are some tips to avoid paying tax on gifts.
Take advantage of government schemes such as PPF, EPF, etc.
Invest in health insurance plans.
Consider gifting to your “relatives”.
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About the author: Jyoti Agarwal is a creative content writer who has worked on different niches and helped multiple brands rank on top of SERPs. She turns jargon into plain English and transforms ideas into stories that won't make your head spin!