Diwali is traditionally a time for exchanging valuable gifts among family and friends. However, it is essential to understand that gifts are not automatically exempt from taxes simply because they are given during this festive period. The tax implications depend on various factors, including the value and type of the gift, the relationship between the giver and recipient, and any applicable exemptions under the law.

According to Section 92(2)(m) of the Income-tax Act, 2025, which aligns with Section 56(2)(x) of the Income-tax Act, 1961, certain gifts received without consideration or for inadequate payment may be taxable for the recipient under “Income from Other Sources.” This rule encompasses cash gifts, specific movable assets such as jewellery and shares, as well as immovable property.

Tax liability can arise even if the recipient does not make any payment for the gift. As explained by CA Suresh Surana, it is crucial for individuals to be aware of these rules before making significant purchases or transferring assets during the festive season.

When Are Diwali Gifts Taxable?

CA Surana highlighted the importance of a Rs 50,000 threshold when determining the tax treatment of various types of gifts. For monetary gifts received without consideration, if the total amount during the tax year exceeds Rs 50,000, the entire sum becomes taxable, not just the portion exceeding the threshold.

A similar rule applies to specified movable property received free of charge. If the aggregate fair market value exceeds Rs 50,000, the entire fair market value may be subject to taxation. For movable property acquired at a discount, the difference between its fair market value and the consideration paid becomes taxable if it exceeds Rs 50,000.

In the case of immovable property, if it is received without payment and its stamp duty value exceeds Rs 50,000, the entire stamp duty value may be taxable. Furthermore, if property is purchased for less than its stamp duty value, the difference may be taxable if it exceeds the higher of Rs 50,000 or 10 per cent of the consideration paid.

Exemptions for Gifts from Relatives

The law provides significant exemptions for gifts received from specific relatives. These include gifts from a spouse, siblings, parents, lineal ascendants and descendants, and their spouses. For instance, a person receiving cash or gold jewellery from a sibling during Diwali would typically qualify for this exemption, subject to legal provisions.

However, the exemption does not extend to all individuals considered close to the recipient. Gifts from friends, colleagues, or others outside the specified categories may be taxable if the relevant conditions are met. Additionally, gifts received on the occasion of the recipient’s own marriage or through inheritance are also exempt under certain circumstances.

It is important to note that a gift received during Diwali does not qualify for the marriage-related exemption simply because of the festive timing. Understanding these nuances can help recipients navigate potential tax liabilities effectively.

Tax Considerations for Gifts from Employers

Employees should also be aware of the tax treatment of gifts received from their employers during the festive season. Under the Income-tax Rules, 2026, the total value of gifts in kind, vouchers, or tokens received by an employee during the tax year is generally considered nil if it is below Rs 15,000.

For gifts exceeding this threshold, employees should review the applicable valuation and tax implications to determine if any amount becomes taxable. Understanding these rules is crucial to avoid unexpected tax liabilities.

Before giving or accepting valuable gifts, CA Surana advises taxpayers to consider the relevant tax provisions. Identifying the nature and value of the gift, as well as whether the giver qualifies as a specified relative, is essential. Keeping supporting documents can also help clarify the nature and source of the gift if questions arise in the future.

Long or Short, get news the way you like. No ads. No redirections. Download Newspin and Stay Alert, The CSR Journal Mobile app, for fast, crisp, clean updates!

App Store – https://apps.apple.com/in/app/newspin/id6746449540

Google Play Store – https://play.google.com/store/apps/details?id=com.inventifweb.newspin&pcampaignid=web_share