Diwali involves celebrations, sweets, and gifts. On certain occasions, gifts come in the form of cash from friends, relatives, or family associates. What if you receive Rs 51,000 as a Diwali gift? Will that cash gift be subject to income tax? This really depends on who gives you the money, and not necessarily how much money you get.
The Rs 50,000 Rule Explained
As per the Indian Income Tax rules, cash gifts received from persons who are not relatives are subject to tax if their total value surpasses the limit of Rs 50,000 per year. The whole amount will be taxed under 'Income from Other Sources' and not just the sum above Rs 50,000.
For example, assume that you receive Rs 51,000 as a Diwali gift from your neighbour. As your neighbour is not treated as a relative for tax purposes, the entire Rs 51,000 may be subjected to tax under the aforementioned tax slab.
However, receiving Rs 40,000 from a friend as a Diwali gift will normally not attract tax under this clause.
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What If the Gift Comes From Family?
Here is the silver lining. Gifts received from certain family members like parents, siblings, spouse or grandparents are normally tax-free irrespective of the sum involved.
For example, if your father gives you a gift of Rs 1 lakh for Diwali, you are normally not liable to pay any tax on this amount.
Additionally, there is also an exemption for gifts received during your marriage. However, Diwali, birthdays and anniversaries do not fall under this category.
How Can You Stay Tax-Safe?
If you receive a substantial cash gift, keep a record of who gave it to you and the amount received. A bank transfer or a written confirmation can help establish the source of the money if questions arise.
A Rs 51,000 Diwali gift is not automatically taxable. Check who gave you the money and how much you have received from non-relatives throughout the financial year before deciding whether it needs to be reported as taxable income.
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