During Diwali, individuals often receive gifts from employers, relatives, and friends. It is essential to understand that, under the provisions of the Income Tax Act, 1961 (hereinafter referred to as the “IT Act”), if the total value of these gifts exceeds the prescribed threshold limit, the recipient may be required to report this amount as taxable income.
Following the provisions of the I-T Act, any bonus received by an employee is taxable under Section 17 as part of the employee’s salary, regardless of the amount. As a result, the entire bonus amount is added to the employee’s salary and taxed according to the individual’s applicable income tax slab rates.
Furthermore, under Section 192 of the I-T Act, the employer is required to deduct tax at source on the bonus amount, ensuring compliance with the withholding tax obligations.
While the law mandates that gifts exceeding Rs 50,000 are taxable, several exemptions can help recipients avoid taxation. The key exemptions are as follows:
1.Gifts from Relatives: Any gift received from a “relative” is exempt from tax, regardless of the value. For example, if you receive gold jewelry worth Rs 1 lakh from your parents during Diwali, it is not taxable as it falls under the exemption of gifts from relatives.
2. Gifts Received on Special Occasions: Gifts received during weddings are also exempt from taxation, regardless of who the donor is. However, this exemption is limited to weddings and does not apply to other special occasions like birthdays, anniversaries, or festivals like Diwali.
3. Gifts from Friends or Non-Relatives: Gifts received from friends or non-relatives are subject to tax if their total value exceeds Rs 50,000 in a financial year. If the value of such gifts remains below the Rs 50,000 threshold, they are not taxable.
4. Inheritances: Any property or money received through inheritance or a will is not treated as taxable income. This includes ancestral properties passed down through generations.
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