Festive Season Gifts In India: Know The Tax Rules

The festive season is finally here. From Navaratri, Durga Puja to Diwali, these are the days Indians love to celebrate with family and friends. Along with all the fun, lights, and sweets, it is also the time for exchanging gifts. That said, before you go picking out the perfect present for your loved ones this year, it is important to know that some gifts you receive during Navratri or Lakshmi Puja could actually be taxable under the law. 

Along with friends and family, many companies also give employees gifts during these occasions, ranging from sweets to bonuses. Some of these gifts can be taxable under the Indian Income Tax Act as “Income from Other Sources.”

• Gifts from non-relatives exceeding Rs 50,000 in a financial year are fully taxable.

• Gifts from an employer up to Rs 5,000 in a financial year are exempt; anything above Rs 5,000 is fully taxable.

• Gifts from specified relatives are completely tax-free, no matter the amount.

When it comes to gifts during the New Year or Diwali, gifts received from relatives are completely tax-free, no matter the value.

Who counts as a relative?

• Parents

• Spouse

• Siblings

• Siblings of the spouse

• Lineal ascendants and descendants (like grandparents, children, grandchildren)

• Spouse of any of the above

• Any member of Hindu Undivided Families (HUF).

Under the Income Tax Act, a ‘gift’ is when someone receives money or property from another person or organisation without giving anything in return. In legal terms, the giver is called the donor, and the receiver is the donee.

For tax purposes, gifts received during festivals include:

• Money: Cash, cheque, draft, or bank transfer.

• Immovable property: Land, buildings, or residential/commercial property.

• Movable property: Jewellery, shares, bonds, paintings, sculptures, and similar items.

The Income Tax Act, 1961, sets rules for when gifts become taxable.

The taxability depends on whether the gift comes from a family member or a non-relative:

• Gifts of money from non-relatives: Tax-free if the total in a financial year is up to Rs 50,000. If it exceeds Rs 50,000, the entire amount is taxable.

• Immovable property from non-relatives: Taxable if the stamp duty value exceeds Rs 50,000, based on the property’s value.

• Movable property from non-relatives: Taxable if the total market value in a year exceeds Rs 50,000.

For money and movable property, the Rs 50,000 limit applies to the total value received during the year. For immovable property, the Rs 50,000 limit applies to each individual property.

Some gifts from non-relatives are exempt from tax, such as:

• Gifts received at the time of marriage.

• Gifts received via will or inheritance.

• Gifts in anticipation of the donor’s death.

• Gifts from local authorities.

• Gifts from registered trusts, foundations, hospitals, educational or medical institutions.

• Gifts received due to company or cooperative bank merger, demerger, or reorganisation.

• Gifts for medical treatment, including COVID-19 treatment, for self or family.

• Gifts from an employer are tax-free if the total value in a year is up to Rs 5,000.

• If the total value exceeds Rs 5,000, the entire amount is taxable.

• Employer gifts are treated as a perquisite and taxed under Salary Income, not “Income from Other Sources.”

• Gifts like cars, bikes, or cycles from the employer are always taxable as perquisites, even if partly or fully free, and taxed as per your slab rate.