Tax Implications On Diwali Gifts

Gifts and dopamine go hand in hand. They’re like two sides of the same coin. Receiving gifts has always made us happy since our childhood, which, technically speaking, is mainly concerned with the release of dopamine - the happy hormone.


Now when Diwali is around the corner, our family and friends are undeniably going to shower us with gifts. It can be in cash or kind, which is further divided into immovable and movable. The former one is real estate, and the latter one includes vehicles, jewelry, etc.


But what most of us don’t know is that gifts in either form are taxed under the head “Income From Other Sources”. As per The Income Tax Act, 1961, the receiver of the gift is liable to pay tax on them. Worried? Fret not! Read further to know the tax implications for giving and receiving gifts.


1.Cash as gift

There is one basic rule regarding cash as a gift. It is tax exempted up to Rs 50,000, but if it even exceeds a penny, then it will be fully taxable. So, if your aunt gives you a Diwali gift of Rs 55,000, you will be liable to pay income tax on it.

2.Gifting in kind

Apart from cash, gifts in kind also come with a tax liability. As mentioned earlier, it is of two types – movable & immovable.

“Movable property” includes objects such as vehicles, jewelry, stocks, etc. things that are physically transferrable. The concept of Fair Market Value (FMV) comes into the picture here. The FMV of the gift should not exceed Rs 50,000 for it to be tax-free.


When it comes to gifts which fall under the category of immovable property, you must know the concept of Stamp Duty Value (SDV). It is the value which has been adopted by the stamp valuation authorities to come to the stamp duty figure. Even here, the rule of Rs 50,000 applies. If the SDV exceeds this number, the gift will be taxed.

3.Exceptions

Now here’s the catch! Just like all the laws in India, The Income Tax Act, 1961 also has many exceptions. Focusing on the ones for gift tax, gifts received from family (parents, spouse, siblings, etc.) be it any amount whatsoever are tax-free! Also, gifts received on marriage, irrespective of the donor, are all tax-free!

4.Even the donor needs to pay tax

There are certain rare circumstances where even the donor needs to pay tax on the gift he has given. There is a concept of “clubbing of income” under the Income Tax Act where such a situation arises. Let us understand this with the following example:

A husband gifts his wife (a housemaker) cash amounting to Rs 5,00,000. She keeps that amount as an FD in her account. So, there is interest income generated on that FD for the wife. This income would be clubbed with the husband’s income as the wife doesn’t have any income of her own. Hence, the donor is paying tax on the gift!

So, from next time take note of which gifts you receive and from whom, as you might be taxed on them!