Like any other major festival in India, gifts are exchanged during Diwali as a gesture of affection and celebration. These gifts could be in the form of cash, gold, or other valuable items.
Whether you are looking to give gifts and are expecting gifts this Diwali, know that the Gift Tax Act was abolished in 1998.
However, gifts received are treated as a person's income and both the applicability of tax as well as an exemption on the same falls under Section 56(2) of the Income Tax Act.
Gifts, in the form of cash, property, shares, securities, jewellery, archaeological collection, drawings, paintings, sculptures, any work of art or bullion or anything valuable, shall be treated as "Income from Other Sources" under the heads of Income in a taxpayer's total income.
Gifts from relatives:
Gifts from relatives are exempt from tax. Relatives here means:
- Spouse of the individual
- Brother or sister of the individual
- Brother or sister of the spouse of the individual
- Brother or sister of either of the parents of the individual
- Any lineal ascendant or descendant of the individual
- Any lineal ascendant or descendant of the spouse of the individual
- Spouse of the person referred in point 2-6 above
Gifts from friends and others
While gifts received from relatives if fully exempt from tax without limit, gifts from friends and others will be treated as "income from other sources" and taxed accordingly. However, gifts (including those on other occasions like marriage, any foundation or institution) are exempt from tax for up to Rs 50,000 of the aggregate amount received during a financial year.
There is no other kind of tax except income tax, that is chargeable on these gifts.