As Diwali approaches, the exchange of gifts becomes one of the most cherished traditions across India. From gold jewelry and silver coins to expensive gadgets and vouchers, people love sharing gifts as a symbol of love and prosperity. However, not many are aware that certain gifts can actually attract income tax under Indian law. The Income Tax Act, Section 56(2)(X), clearly defines when gifts become taxable—and ignoring these rules can land you in trouble with the tax department.
Gifts Are Not Always Tax-FreeUnder Section 56(2)(X) of the Income Tax Act, if the total value of gifts received from non-relatives in a financial year exceeds ₹50,000, the entire amount becomes taxable. This rule applies regardless of the type of gift—whether it’s cash, jewelry, gold coins, property, or any other asset.
So, if you receive multiple gifts from different friends or acquaintances during Diwali, and their combined market value crosses ₹50,000, you will need to declare this as “Income from Other Sources” while filing your income tax return (ITR). The taxable amount will then be added to your annual income and taxed according to your applicable income slab.
No Special Tax Exemption for Diwali GiftsAccording to Alay Rajvee, Managing Director at Accord Juris, Diwali does not offer any special exemption from tax on gifts. The same rules apply throughout the year. Gifts received from non-relatives are exempt from tax only if their total value is ₹50,000 or less during a financial year. Anything above that is taxable in full.
That means if you receive gold jewelry or expensive electronics from friends or colleagues during Diwali, and their total value exceeds the limit, you must pay tax on it. The festive occasion doesn’t change the tax implications.
Gifts from Relatives Are Fully ExemptThe good news is that gifts received from close relatives are completely tax-free, no matter how expensive they are. According to Supreme Court advocate Tushar Kumar, gifts from specific family members such as parents, siblings, spouse, and children fall outside the scope of Section 56(2)(X).
This means if you receive gold jewelry, silver coins, or other high-value items from your parents or spouse this Diwali, you don’t need to worry about tax. However, maintaining proof of relationship and the nature of the gift is important in case the Income Tax Department seeks clarification later.
Gifts from Employers Are Treated DifferentlyGifts received from your employer are taxed under a separate rule—“Income from Salaries.” According to P. Narang, Partner at CNK, gifts or vouchers received from an employer worth up to ₹5,000 in a financial year are tax-free.
However, if the total value of employer gifts crosses ₹5,000, the entire value becomes taxable, and the employer is required to include it in your Form 16 while deducting TDS (Tax Deducted at Source). Employees must also report such gifts when filing their ITR.
Tax on Property and Other High-Value GiftsApart from movable assets like jewelry or cash, property received as a gift can also be taxed. If you receive immovable property (like land, flat, or house) without paying anything—or at a price significantly lower than its market value—the difference can be treated as taxable income under Section 56(2)(X).
This rule ensures that people do not use “gifting” as a loophole to avoid paying taxes on expensive assets.
Why You Should Stay CompliantTax experts strongly recommend keeping a record of all gifts received, including their source, nature, and approximate market value. Even if the gift is tax-free (such as those from relatives), maintaining transparency can help avoid scrutiny later.
Failure to declare taxable gifts in your Income Tax Return (ITR) may attract penalties and interest under various provisions of the Income Tax Act. Therefore, understanding these rules before exchanging gifts during festivals like Diwali can help you stay compliant and worry-free.
Final TakeawayWhile Diwali is a time of joy, generosity, and giving, it’s also important to stay financially aware. If you plan to gift or receive expensive items this festive season, remember that not all gifts are exempt from tax. Gifts from close family members are safe, but those from friends, employers, or others could come under the tax scanner if they exceed the prescribed limit.
By keeping these rules in mind, you can celebrate Diwali with both happiness and financial wisdom—ensuring your generosity doesn’t lead to unexpected tax trouble later.
Disclaimer: This article is for informational purposes only. Tax laws are subject to periodic changes. Please consult a certified tax advisor or chartered accountant before making any tax-related decisions.
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