Tax liability on Diwali gifts

If you have received a Diwali gift from your employer, you may be required to pay gift tax on it. But not all recipients of festive gifts are required to pay gift tax. Let us find out who are liable to pay the gift tax and who are not.

If an employer gives a festive gift card or voucher having value of less than Rs 5,000 to the employees during a financial year, the gift is totally tax exempt and the recipient employees are not liable to pay any tax. However, if the value of the gift exceeds Rs 5,000, then the entire amount is considered as a ‘perquisite’ forming a part of the salary and taxed at the tax rate applicable to the employee. Moreover, if the gift is received in the form of cash or ‘cash equivalent’, such gift will be treated as a part of the salary income and attract tax even if the amount is less than Rs 5,000.

If a person receives a gift from relatives (‘relatives’ as defined in the IT Act), the person will not be liable to pay any tax. Any gift received from individual or HUF (other than relatives) will also be exempt from tax provided the value of the gift does not exceed Rs 50,000 in a financial year. If the value exceeds Rs 50,000, then the entire is treated as ‘income from other sources’ as taxed as per the tax slab of the recipient.