The exchange of gifts is a common practice across cultures and traditions. In India, gift giving is an integral part of the culture and the celebration of festivals is not complete without gifts. Many taxpayers may not be aware that gifts received in a financial year can be taxed. Gifts received by an individual are taxable under the existing Income Tax (IT) Act.
As per the law, if you have received a gift and it does not fall in the exempt category, then it can be taxed. An individual has to disclose the gifts received at the time of filing Income Tax Return (ITR) for that particular financial year.
Section 56(2) of the Income Tax Act states that it will be taxable if the aggregate value of all gifts received by the taxpayer exceeds Rs.50,000. Gifts include all items, both in cash and in kind. There is no tax liability as long as the value of gifts received in a financial year remains within the exemption limit of Rs.50,000.
However, the tax on gifts depends on who gave you the gift. When a person accepts gifts from family members or close relatives, he is not required to pay tax on the same. Here, relatives include the taxpayer’s parents, spouse, brother and sister.
As per the existing law, friends are not included in the definition of relatives for taxation purposes. Gifts you receive from your friends fall under the category of “income from other sources” and are thus taxed.
If you have received a gift from your employer, whether in kind or in cash, and the amount is less than Rs 5,000 for the financial year, then it will not be taxable. But, when the amount exceeds Rs 5,000, it is considered as a part of your salary and becomes taxable as per the applicable tax slab.