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Received Diwali gifts? Find out if it is taxable

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Exchanging gifts on the occasion of Diwali is a part of Indian tradition.

Received Diwali gifts? Find out if it is taxable
Exchanging gifts on the occasion of Diwali is a part of Indian tradition. While presents are considered a token of love, individuals should know that all kinds of gifts including cash, gold, real estate, paintings, or any other valuable item are taxable.
Although the Gift Tax Act was abolished in 1998, all gifts received during Diwali may not be tax-exempt.
Section 2 (24) of the Income-Tax (I-T) Act deals with gifts received that will be treated as a person's income, while Section 56 (2) deals with both the taxation and exemptions on them.
Let’s understand the different scenarios in detail:
When the gift is received from the employer
In India, almost every employer offers gifts to its employees on various occasions during the year like Diwali, New Year, etc.
As per the Income Tax Act, if an employer offers any gift voucher in kind or cash amounting to less than Rs 5,000 during the financial year, then it is wholly exempt.
However, as Deepak Menon, manager- taxation, IndiaFilings says, if the amount of gift exceeds Rs 5,000, then the whole amount is treated as part of salary and taxed as 'perquisite' according to one’s tax slab.
"Therefore, even if one receives two or more vouchers amounting to more than Rs 5,000 during a year, then these receipts will be taxed as per the applicable slab rate. It is to be noted that gifts in cash or convertible into cash (like a cheque) given by an employer are fully taxable. So, even if one receives Rs 1,000 as cash from the employer, then it would be fully taxable as income from salary," explains Menon.
Tax provision for company
If the company does any expenditure on its employees, then it can claim the same as employee welfare expenses eligible for the deduction against its income.
However, if the company offers gifts to customers/business associates, then the expense on it is claimed as business promotion expenses. The expenditure by the company should be justifiable and reasonable considering its size and operations, as per Menon.
Gifts received from relatives
According to Kapil Rana, founder & chairman, HostBooks Ltd, Diwali gifts received from relatives are fully exempt from tax without any limit, provided such relative comes under the definition of the relative for the purpose of section 56(2).
Gifts received from friends and others
Diwali gifts received from friends will be treated as income from other sources and will be taxed accordingly.
However, gifts (either Diwali or any other) up to Rs 50,000 received in aggregate during the financial year are exempt from tax.
GST on Diwali gifts
In the words of Rana, "Gifts are not defined in the GST law, in common parlance, a gift is made without consideration, is voluntary in nature and is made occasionally. In addition, GST will only be levied if the transfer of goods or services made for consideration and in the course of furtherance of business."
However, as per Schedule I of Section 7 of the CGST Act, the transfer of goods between related persons even without consideration will be subject to GST when made in the course or furtherance of business.
So, if gifts are distributed to un-related persons, GST will not be levied, according to Rana.
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