Are your Diwali gifts taxable? Know tax implications on gifts this festive season

Gift-giving is a significant component of Indian festivals, and as Diwali approaches, people should be aware that some gifts may be subject to taxes. The government eliminated the gift tax in 1998, but it was reinstated in 2004 in a new form and was added to the Income Tax provisions.

When are gifts exempted from tax?

All gifts from family members, gifts obtained as part of an inheritance or will, gifts received upon marriage, and gifts received in anticipation of death are exempt from taxation. Sehgal stated, However, that presents received from people other than family are only subject to taxation if their fair market worth exceeds Rs 50,000. Immovable property is also exempt from taxation when it is settled under a trust. It is important to remember that the gift tax was eliminated years ago.

In essence, presents of any kind received from relatives on any event, including Diwali, or even without any occasion, are typically not subject to taxation at all. Gifts from anyone other than family members, however, are taxable if their fair market value exceeds Rs. 50,000. Despite coming from a related or a non-relative, gifts received by a bride and groom on their wedding day are not taxed.

"Gifts received from other than relatives in the form of immovable property without paying for it at all shall be taxable if the stamp duty value exceeds Rs 50,000. On the other hand, if this property is received after paying some amount from any person other than relatives and that amount is less than the stamp duty value of the same property by an amount exceeding Rs. 50,000, the difference between the stamp duty value of the property and such amount shall be taxable," Sehgal explains