On Diwali, people offer gifts not just to family members, but also to boost business contacts and make friends and neighbours happy, depending on their financial capabilities.
When you receive or give a present, the last thing on your mind is taxes. However, some gifts may be taxed in the hands of the recipient.
While presents from family members are tax-free, gifts from friends, business associates, and employers may be subject to taxation.
“Gifts are amounts or property received without consideration. Gifts in cash or kind in excess of Rs 50,000 would be liable to income-tax in the hands of the recipient.
For gifts in excess of the Fair Market Value of the gift over the consideration if any paid would be regarded as a taxable gift if such difference is in excess of Rs 50,000,”
Gifts received from family, as defined in the Act, are exempt from taxation." The Act defines relations as parents, spouse, siblings of self and spouse, lineal descendants and ascendents of self and spouse, and so on.
Cash gifts of Rs 50,000 or less are not taxed. Remember to total all of your cash presents for the year. If the total exceeds Rs 50,000, the entire amount is taxed.
Gifts received from family are tax-free. Furthermore, there is no limit to the amount you can receive! The statute also defines relatives, which sadly excludes love interests.