Shastrarth: Taxation of Gifts on Diwali

Man: Hey Lord! The festival of Diwali has brought us closer to our relatives. The exchange of blessings, gifts, sweets arouses the love that exists amongst us.

God: It is good to enjoy but never forget that all these worldly things are only maya (illusory) and the living being should not forget his duties.

Man: Duties? You must be talking about the environment. I am strictly against burning crackers.

God: Good. But wait before you make any conclusions. What we forget is including the gifts that we receive in our taxable income. One who forgets, fails in his duty to disclose true income.

Man:  Hey Lord, Then please enlighten me of the provisions of income tax about taxability of gifts.

God: Listen Man, Gift is a benefit, whether monetary or not that a person receives without any consideration or for inadequate consideration.  The web of taxation covers gifts as an income under the head, Income from other Sources.

Man: But Lord, if a person is voluntarily giving gift then the income tax department has no business poking its nose into people’s lives.

God: Oh innocent Man, Not all people are as righteous as you and not all income tax provisions are logical. It is an income for the receiver and thus it should be taxed is a simple reason. And remember not all gifts are taxed.

Man: God, kindly explain me the gifts which are taxed.

God: Now listen carefully Man as I explain in detail, As per the Income Tax Act, 1961, the following gifts are taxable in the hands of the recipient:

a)  Any sum of money,  if its total exceeds Rs. 50,000 during the year

b) An immovable property received without consideration is taxable at its stamp duty value if the stamp duty value exceeds Rs. 50,000.

c) An immovable property acquired at a consideration which is lower than its stamp duty value is taxable if the difference between stamp duty value and actual consideration exceeds Rs. 50,000.  The taxable value shall be such difference.

d) A movable property received without consideration is taxable at its market value if the total market value exceeds Rs. 50,000.

e)  A movable property acquired for inadequate consideration if the difference between the total market value and consideration exceeds Rs. 50,000. The taxable value shall be such difference.

Man: Oh infallible God, Do I need to calculate the market value of all gifts, sweets received during the year?

God: No dear Man, the meaning of ‘property’ is restricted to immovable property being land or building or both; shares and securities; jewellery; archaeological collections; drawings; paintings; sculptures; or any work of art.

Man: Your words have reminded me of the sins I have committed in the past. I did not include the gifts that I had received on my marriage.

God: Oh virtuous Man, you have surrendered unto me. How can you commit any sin when I am there to drive your boat through the troubled waters of Indian taxation laws? Gifts received by an individual on the event of his/her marriage are exempt. Further, gifts received by an individual from his relatives or under a will or by inheritance are also exempt.

Man: That is such a relief for a taxpayer. What would be the implications when the relationship between payer/giver and recipient is that of employer-employee?

God: Remember Man, No one can escape death and tax. The value of gift given by the employer to employee is taxable as perquisite, provided its value is not less than Rs. 5,000.

Man: My dear God, my illusion is now gone. I am now firm and free from doubt and am prepared to act according to Your instructions.

Dear friends, I have made an attempt to simplify the topic by presenting it as a conversation. This is my first article on CAclubindia and I duly acknowledge that the article is inspired from similar articles available at this forum.

Would love to really know your views.