ITR Filing: What You Should Know About Tax On Gifts And Exemptions
Exchanging gifts is a common practice across cultures and traditions. In India, gifting is an integral part of the culture and celebration of festivals isn't complete without gifts. Many taxpayers may not know that gifts received in a financial year can attract tax. Under the existing Income Tax (I-T) law gifts received by an individual are taxable.
As per law, if you have received a gift and it doesn't fall in an exempted category, then tax can be levied on it. An individual has to disclose the gifts received while filing an Income Tax return (ITR) for that particular financial year.
Section 56(2) of the Income Tax Act stipulates that if the aggregate value of all the gifts received by a taxpayer is more than Rs 50,000 it will be taxable. The gifts include all items both in cash and kind. There is no tax liability till the values of the gifts received in a financial year remain within the exempted limit of Rs 50,000.
However, the tax on gifts depends on who gave you the gift. When an individual accepts a gift from family members or close relatives, s/he isn't required to pay taxes on it. Here, relatives include the parents, spouse, brother and sister of the taxpayer.
According to the existing law, friends are not included in the definition of relatives for taxation purposes. The gifts that you receive from your friends fall in the category of “income from other sources” and thus they attract tax.
In case you have received a gift from your employer whether in kind or cash and if its amount is less than Rs 5,000 for the financial year, then it would not be taxed. But, when the amount exceeds Rs 5,000, then it is considered a part of your salary and becomes taxable as per the applicable tax slab.
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