Sharing gifts is part of Diwali celebrations. From merchandise to gold to candy and snacks, we love to share all types of gifts with our loved ones.
But what about cash? Is it wise to share gift money on Diwali? And, are there any tax implications on sharing gift money. As you celebrate the Festival of Lights, FE Online spoke with Dr. Suresh Surana, founder of RSM India, to find answers to these questions. Looked:
How much money can an individual receive as a gift on Diwali without attracting the wrath of taxpayers?
In accordance with the provisions of Section 56 (2) (x) of the Income Tax Act 1961 (“Information Technology Act”), if the total sum of money received by an individual exceeds Rs. 50,000 without any consideration during a specific financial year, this amount will then be taxable under “Income from other sources”.
Simply put, if a person receives money from one or more people and the total value of that receipt exceeds Rs. 50,000 in a particular financial year, that amount will be taxed at the applicable slab rates. to that person.
Since the threshold limit is applicable for a particular year, a specific amount that an individual can receive as a Diwali gift without attracting the wrath of taxpayers cannot be specifically stated as gifts received in the event also need to be evaluated. other festivals.
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However, to avoid tax, the prima facie condition is that the total amount of cash received as a gift must not exceed Rs. 50,000 in any fiscal year.
It is also relevant to note that, if an employee receives a cash gift from his employer, the total amount received as a gift (even if it does not exceed Rs 50,000) will be taxable under ‘Salary income’.
Is it wise to give money as a gift to Diwali from an income tax perspective? If not, what are the other options?
It depends on individual choices and the cash gift, even if it is chosen to receive, if it is within the overall limit specified in question 1 above, would have no tax implications.
Is the father’s cash donation taxable?
The IT law explicitly states that the provisions of article 56 (2) (x) will not be applicable if a person receives gifts from one of his relatives. In addition, the term “parents” in the case of an individual is defined as:
(A) the individual’s spouse;
(B) brother or sister of the individual;
(C) brother or sister of the individual’s spouse;
(D) brother or sister of one of the individual’s parents;
(E) any ascendant or descendant in a direct line of the individual;
(F) any ascendant or descendant in a direct line of the individual’s spouse;
(G) the spouse of the person referred to in points (B) to (F);
The Father of an individual is the ascendant in a direct line. Thus, cash donations received by an individual from his father are totally exempt even if they exceed Rs. 50,000 in a year.
Are cash gifts from friends taxable?
Yes. Information technology law does not explicitly exempt cash gifts received by an individual from friends as is the case with relatives. Thus, the same will be taxable if the overall revenue for an exercise exceeds Rs. 50,000.
Who has to pay tax on gifts – the person receiving the gift or the person giving the gift?
According to the provisions of Article 56 (2) (x) of the Data Protection Act, the person who receives the gift is liable to tax on it.