Diwali is the time of year for celebrations, lights, sweets, and gifts. While sharing gifts during Diwali is a beautiful tradition, did you know that these gifts might come with a tax in India under certain circumstances? Yes, the gifts you give or receive during Diwali could attract taxes. To help you navigate this complex area, let’s break down the taxes on Gifts for individuals, employees, and businesses.
Types of Gifts Covered
When we talk about gifts, they can come in various forms during Diwali, such as:
- Cash
- Property (Immovable property like land, buildings, etc.)
- Movable property (Jewellery, shares, securities, etc.)
- Gift vouchers or bonuses
- Goods (like electronics, household items, etc.)
- Festival hampers or packages
Depending on the nature and value of these gifts, their tax treatment in India can differ.
Tax Implications of Diwali Gifts:
1. Diwali Gifts from Relatives (Is a Diwali Gift Taxable?)
Gifts received from relatives on Diwali are generally not taxable, as per Indian tax laws. However, the term “relative” is defined very specifically by the Income Tax Act. Here’s a list of who qualifies as a “relative” for tax-free gifts:
- Spouse
- Siblings
- Siblings of the spouse
- Siblings of either of your parents
- Lineal ascendant or descendant (e.g., parents, grandparents, children, grandchildren)
- Spouse’s lineal ascendant or descendant
As long as the gifts you receive fall within this group, they are completely exempt from tax, regardless of the value.
2. Diwali Gifts from Non-Relatives
Is a Diwali gift taxable if it comes from non-relatives? If the total value of gifts from non-relatives exceeds ₹50,000 in a financial year, the entire amount becomes taxable as “Income from Other Sources.” For example:
- If you receive gifts worth ₹70,000 from non-relatives during Diwali, then the entire ₹70,000 will be added to your income and taxed accordingly.
- If the gift value is less than ₹50,000, it is exempt from tax.
So, be mindful of the value of gifts you receive from friends, colleagues, or business associates!
3. Taxability of Diwali Bonuses (Is Diwali Bonus Taxable?)
Many companies in India offer bonuses to their employees during Diwali, often referred to as “Diwali Bonus.” Unfortunately for employees, any bonus received from your employer, whether during Diwali or any other occasion, is fully taxable as part of your salary income.
This means the Diwali bonus will be added to your salary and taxed at the applicable income tax slab rates. Employers deduct TDS (Tax Deducted at Source) on these bonuses as per your income tax slab.
4. Taxation on Gifts to Employees (Is Diwali Gift Taxable for Employers?)
For employers, providing Diwali gifts to employees is a common practice. However, employers must keep in mind the taxability of such gifts. Here’s a breakdown:
- Gifts up to ₹5,000 per employee per year are exempt from tax.
- If the value of the gift exceeds ₹5,000, the entire amount becomes taxable as part of the employee’s salary. For example, if you give a gift to an employee, say a smartphone worth ₹10,000, the entire ₹10,000 will be treated as part of their taxable salary.
- Employers must report these gifts as part of the employee’s Form 16, and TDS will need to be deducted accordingly.
5. ITC (Input Tax Credit) on Diwali Gifts to Employees
If you’re a business owner, you may be wondering whether you can claim ITC on Diwali gifts given to employees or clients. Unfortunately, the GST laws are quite clear on this:
- ITC is not available on gifts provided free of cost, even if those gifts are given in the course of business or for promotional purposes.
So, if you’re gifting Diwali hampers, vouchers, or other items to employees or clients, you cannot claim ITC on the GST paid for these gifts.
6. TDS on Diwali Gifts
The question of TDS on Diwali gifts usually arises in the context of gifts given by employers or business associates. While Diwali gifts to employees under ₹5,000 are exempt, larger gifts are treated as part of salary income, and TDS must be deducted as per the applicable tax slab. For example:
- If you provide a Diwali gift worth ₹10,000 to an employee, this amount will be added to their salary, and TDS will be deducted accordingly.
- If you give gifts of non-cash items like gold or property to non-relatives, they must report these gifts under “Income from Other Sources,” and TDS may apply in certain cases.
How to Stay Compliant with Tax Laws on Gifts
Here are a few tips to ensure you stay on the right side of the law when it comes to Diwali gifts:
- Track the value of gifts: Keep a record of all the gifts you receive, especially from non-relatives. If the value exceeds ₹50,000, make sure to report it in your income tax return.
- Consult a tax advisor: If you’re uncertain about the tax implications of a gift, it’s always a good idea to consult a professional. You can reach out to ApkiReturn at +91 766 515 6000 for personalised guidance.
- TDS on Diwali gifts: Ensure that if you’re gifting employees, you’re correctly accounting for TDS as part of their salary income.
- GST compliance: If you’re a business owner, remember that no ITC on Diwali gifts to employees is available on free gifts, so adjust your GST claims accordingly.
Conclusion
The tradition of exchanging gifts during Diwali is wonderful, but it’s important to understand the tax implications associated with them. Whether you’re receiving gifts from friends or giving them to employees, being aware of the tax rules will help you avoid any surprises during tax season.
For more information or to get help with your tax filings, Contact ApkiReturn at +91 766 515 6000. We’ll help you navigate the complexities of the Indian tax system and ensure you’re fully compliant.
Feel free to reach out to ApkiReturn to understand more about the taxation on Diwali gifts and how to file your returns smoothly!
