Tax implications on Diwali Gifts, Perquisites & any kind of Gifts in India

Tax implications on Diwali Gifts, Perquisites & any kind of Gifts in India

In India, the tax implications on gifts vary significantly depending on the value, the relationship with the giver, and the nature of the gift. The tax is levied on the recipient and must be declared in their income tax return (ITR) under “Income from Other Sources,” unless it falls under a specific exemption.

What’s the issue?

As Diwali approaches, gift-giving is everywhere — sweets, gadgets, bonuses, business giveaways. But under the Income‑tax Act, 1961 (ITA), not all gifts are treated the same for tax purposes. Whether a gift is taxable depends on who gives it, who receives it, its value, and why it was given.

When gifts are exempt

Gifts may be non-taxable in these situations:

Gift from a “specified relative” (any amount, any type) → exempt.

Gift on the occasion of marriage → exempt.

Gift under a will / inheritance → exempt.

Gifts to notified trusts / institutions under certain sections → exempt.

When gifts become taxable:

➤ If you receive a gift (cash, movable property, immovable) from someone not a relative and the aggregate value in a financial year exceeds ₹ 50,000 ,the entire gift value becomes taxable.
For example, If a company or acquaintance gives you sweets, gadgets, etc. in Diwali and their value crosses ₹ 50,000 in the year , it is taxable

Also, If a gift (or benefit/perquisite) is given in connection with business or profession (to someone earning from business/profession), it may be taxable as a perquisite.

Specific issues around perquisites & business gifts

➤ Gifts given in the course of business (e.g., by vendor to client, by employer to employee beyond certain value) may trigger tax obligations.

➤ Under Section 194R of the ITA: If a resident person engaged in business or profession receives a “benefit or perquisite*” (in cash or kind) from another person, and the aggregate value during the year exceeds ₹ 20,000, the giver has to deduct TDS @ 10 %.

➤ Under Section 56(2)(x): For gifts from non-relatives, without consideration or inadequate consideration, tax may apply on the fair market value above thresholds.

Practical take-aways

➤ If you receive Diwali gifts from family/relatives — you’re generally safe from tax (provided you truly fall under “relative” definition).

➤ If you receive from non-relatives — track the total value of gifts in the year. If it exceeds ₹ 50,000, you’ll need to include it in your taxable income.

➤ If you are in business/profession and receive gifts or benefits in connection with your activity, check whether they qualify as taxable perquisites.

➤ If you give gifts (especially in business context), be aware of the TDS obligation under Section 194R if the value to a recipient exceeds ₹ 20,000 in the year. Keep proper records.

➤ For employers: Gifts to employees may be taxed as part of salary if they go beyond thresholds or are in cash (or treated as salary-perks).

➤ Maintain documentation: value of gift, donor/recipient relationship, reason for gift, whether business/personal. These factors determine tax treatment.

Why this matters:

_While Diwali is a joyous time of sharing, from a tax standpoint even seemingly benign gifts can lead to unexpected tax obligations. Understanding the difference between personal gift and business/gift as perquisite is key. Without awareness, recipients may face tax liability; givers may face TDS and compliance issues.

Team- Intellex Strategic Consulting Private Limited

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