Diwali Gifts Taxable or Tax Free? Decoding the Rules for Receiving Gifts During Diwali

While the much-awaited and anticipated festival of the year, Diwali, is around the corner, it is also a moment for exchanging gifts. It should be mentioned that one can take the alternative route of gifting shares, antique pieces or expensive artefacts collected from time to time. Although specific guidelines and laws governing gift taxation may vary by jurisdiction, some broad principles generally apply. Many countries have tax implications attached to gift transactions.

50,000 Rs
It may be mentioned that gifts received from relatives during Diwali are completely exempt from tax under the Income Tax Act. However, gifts from non-relatives above ₹50,000 are taxable. It is classified as "Income from other sources".

A look at the Diwali gift tax rules
While gifts from designated relatives (such as your spouse, siblings, parents and grandparents) are fully exempt from taxation as per the provisions of the Income Tax Act, 1961, gifts from non-relatives are classified under the tax " Income from other sources when the cumulative value of gifts in a financial year exceeds Rs.50,000.

relatives
The definition of "relatives" may not be synonymous with how taxpayers define the term. However, the term "specified relatives" eligible for tax exemption includes:

• Spouse
• siblings
• parents and grandparents
• Spouses of parents and grandparents
• Lineal descendants and descendants (such as children, grandchildren, great-grandchildren, etc.)
• Lineal descendants and descendants' spouses
• Defining gifts and their valuation.

It should be mentioned that when it comes to tax assessment, the value of the gift is generally established based on the fair market value of the given property at the time of transfer.

This valuation can be complex (especially when dealing with non-monetary assets such as real estate or artwork).

• Gift taxation covers acquisition of the following assets:
• Shares and Securities
• Jewelry
• Archaeological collection
• Drawings
• Pictures
• sculptures
• Any work of art
• Boolean
• Apart from this, receipt of cash or immovable property worth more than Rs 50,000 will also be subject to tax.