Festivals are the face and essential part of our culture. Diwali is an occasion where a great deal of gifting happens. Some companies even give bonuses to their employees. While enjoying these gifts, its time to know about the income tax implications and to know whether be a Diwali bonus or monetary gifts, they are liable for taxes.
As per the Income Tax law, gifts are classified as any sum of money received (monetary gift); specified movable properties (gift of movable property); specified movable properties received at a reduced price (i.e. for inadequate consideration); immovable properties received without consideration (gift of immovable property); and immovable properties acquired at a reduced price.
Monetary gifts received by an individual will not be charged to tax in a case like money received from relatives which can be spouse, brother, sister, or parents, among others. As per Section 56(2) of the Income Tax Act, gifts received in a financial year can be taxed as “income from other sources” as per the slab rate. However, gifts from close family members are exempted.
Taxation of Diwali gifts would generally depend upon the nature of the gift as well as the person gifting such cash, gold, car and property. Such taxation would be governed in accordance with Section 56(2)(x) of the Income Tax Act, 1961.
Section 56(2)(x) of Income Tax Act, 1961 provides that any sum of money or value of property received without consideration or with inadequate consideration to be subject to tax in the hands of recipient as Income from Other sources.
In the case of HUFs, monetary gifts are not charged to income tax are, money received on the occasion of the marriage of the individual; sum received by way of inheritance; sum received in n contemplation of death of the payer or donor; sum received from the local authority; sum received from any fund, foundation, university, medical institutions, others; money received as a consequence of demerger or amalgamation of a company among others.
Gifts or vouchers received in a financial year shall be tax-exempted under the Income Tax Act if their total amount is less than ₹5,000. Any gifts you receive over ₹5,000 will be added to your income and taxed as per your tax bracket. For instance, if you get presents of around ₹5000 during Diwali and ₹3,000 again at Christmas, you will be required to pay tax on the gifts worth ₹3000, which is over Rs. 5,000. Some employers give Diwali bonus instead of gifts. This will be considered as a part of their salary and charged to tax.