Received an expensive gift this Diwali? You may be liable to pay income tax on it—check details

Have you received an expensive gift from someone this Diwali? It could be an expensive watch, a rare painting, a piece of jewellery, or even a pair of branded shoes. Although a gift is typically considered tax-free, when its value is more than ₹50,000, it is liable to income tax in the hands of the receiver.

Not many know that any gift received on Diwali or otherwise is taxed in the hands of the recipient under the head ‘Income from other sources’ at normal tax rates under Section 56(2)(vii) of the Income Tax Act, 1961.

“Gifts received on Occasion of Diwali come in Purview of Income Tax. If the total value of gifts exceeds Rs. 50,000, the same is taxable. The gifts include cash, gold shares, etc. However, gifts given to relatives as per the Income Tax Act are exempt,” says Pratibha Goyal, a Delhi-based chartered accountant.

A gift is not liable to tax when the following applies:

1. You have received a gift from any relative.

2. You received a gift on the occasion of the marriage.

3. The gift was received under a will or by inheritance.

4. In contemplation of the death of the payer.

However, what would one do when the gift is not in cash but in kind?

“When the gift is in kind, it is the responsibility of the receiver to ascertain and disclose its value. And when the value of the gift is more than ₹50,000, one has to pay tax on it. It is noteworthy that when the gift is given by a relative, it does not draw any tax on it,” says Chirag Chauhan, a Mumbai-based chartered accountant and founder of CA Chauhan & Company.

Here, we recapitulate the key points:

1. Amount of gift: When the gift is valued at over ₹50,000, you are liable to pay income tax.

2. Tax rate: The tax rate is determined by the tax slab you fall under. The value of the gift is simply added to the income and taxed as per the slab. If you fall under the 30 per cent tax bracket, you will pay 30 per cent on it.

3. Gift in kind: When the gift is in kind, it is the receiver's responsibility to assess its value and disclose it in the tax statement.

4. From a relative: When the gift is given by a relative, such as a sibling or parents, it is not taxable.

The definition of relative includes the following individuals:

A. Spouse

B. Spouse’s brother or sister and their spouse

C. Parent’s brother or sister and their spouse

D. Lineal ascendant (parent, grandparents) or descendant (children, grandchildren)

E. Spouse’s lineal ascendant (parent, grandparents) or descendant (children, grandchildren).