Are Diwali Gifts Taxable or Tax free? - Let's see the Tax Provisions, Exclusion, Gifts received by salaried person, ITC on Gift & TDS

Deepawali is the major occasion when gifts are given & gifts are received. It may be just boxes of mithai, dry fruit to valuable like gold & silver coins etc.

Many of them are unaware that gifts received is taxable in hands of recipients. 

Tax Provisions

In case total value of gifts, in any form, received from all the sources during a financial year exceeds fifty thousand rupees, whole of the amount become taxable without any exemption. However, as long as aggregate of all the gifts does not exceed fifty thousand rupees, there is no tax liability for the recipient. All gift whether received in cash or as gift voucher or in kind have to be considered for arriving at the threshold.

Exclusion of certain gift

Gifts received from certain relative are excluded:- spouse, brothers & sisters of the receiver himself. It also includes brother & sisters of the spouse. Relative here further includes all the persons who are lineally ascendants of decedents of the recipient. The definition of relatives are very vast still it does not include all your relatives.

Examples

Any gift received by nephew or niece from their uncles & aunts is fully tax free but reverse is not true. So if the gift received by uncles & aunts from their nephew or niece is taxable above threshold limit i.e. is fifty thousand rupees.

Gift received at the occasion of your marriage & assets received as inheritance are also excluded from the thresshold limit. The gifts received from relatives as well as on several occasion enumerated are not treated as your income without there being any limit so you are not even require to disclose it in Income Tax Return.

Gifts received by salaried person

For all those who receive the small gifts of sweet & dry fruit box, the probability of aggregate value of all such gifts exceeding the threshold of fifty thousand is very low but for those who receive costly gifts, the aggregate value may incidentally exceed fifty thousands and thus bring all gifts under the tax net. These gift should be shown under head- income from other sources. 

Gifts received from employer during the year is exempt upto Rs. 5,000/- in hands of an employee beyond which it will become taxable & the employer is supposed to deduct tax on such gifts.

GST- Can we take ITC on Gift Given.

Input tax credit of gifts purchased for giving gifts to customers, associates etc will not be allowed as the same is under blocked credit u/s 17(5)(h) of CGST Act, 2017.

For e.g. Gift articles purchased of Rs. 60,000.00 + 10,800.00 (18% GST) = 70,800.00 Entire 70,800 to be debited to cost & Input tax credit of 10,800.00 cannot be availed

TDS u/s 194R

Finance Act, 2022 inserted a new section 194R which mandates a person, who is responsible for providing any benefit or perquisite to a resident, to deduct tax at source @ 10%.  The benefit may be in cash or kind. 

TDS @ 10% will be apply u/s 194R if the aggregate value of the gift provided to the resident during the financial year exceeds Rs. 20,000.00

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