Ladoos, Love, and Liability: How the Taxman Sees Your Gifts

 

We Indians don’t need an occasion to gift – be it Diwali, a wedding, a new baby, a housewarming, or even an exam result (sometimes even when the result isn’t great!). Gifting is an emotional language – but unfortunately, tax laws believe in reason and relation, not emotion and affection. So while your heart says, “Give freely,” the taxman whispers, “But please remember our share.”

A Brief & Taxing History of Gifting [From Gift Tax Act to Section 56(2)(x)]:

A little history adds perspective to this modern-day gifting dilemma.
India’s first formal tax on gifts came through the Gift Tax Act, 1958, which imposed a levy on the giver. Gifts above a certain threshold were taxed at rates as high as 30%. But the law proved cumbersome and yielded little revenue compared to the compliance burden it created.

In 1998, the Gift Tax Act was abolished – ushering in an era where gifts of cash, jewellery, or property were largely tax-free. Predictably, the absence of such a law opened a convenient backdoor for converting unaccounted money into “gifts” or undervalued property transfers.

To plug this, the government reintroduced gift taxation – not through a new law, but within the Income-tax Act, 1961, as Section 56(2)(v) via the Finance (No. 2) Act, 2004. This time, the tax burden shifted from the giver to the receiver.
Over time, its scope widened — first to include immovable property, then movable assets like shares, jewellery, and bullion, and later even aggregate limits to stop multiple small gifts escaping tax.

In short, India’s journey from the Gift Tax Act to Section 56(2)(x) reflects how a simple anti-evasion measure evolved into a full-fledged system for taxing “freebies” and undervalued transfers. What was once a loophole soon became a highway — and once taxpayers discovered the highway, the government built a toll booth called Section 56(2)(x).
Today, it covers almost every possible form of gifting. Let’s unwrap that rule further.

When Gifts Turn Taxable:

Under Section 56(2)(x), gifts are taxable if the aggregate value exceeds ₹50,000 in a financial year and are received from non-relatives.

There are three broad categories of taxable gifts:

1.  Monetary Gifts – If you receive money (cash, cheque, UPI, bank transfer, etc.) exceeding ₹50,000 in total from non-relatives, the entire amount is taxable.
Example: If you receive ₹60,000 from your office friends on your birthday, you don’t just cut the cake – you cut 30% (or applicable tax slab) tax on ₹60,000!

2.  Immovable Property – If you receive land or a building:

o    Without consideration (i.e., free gift), and its stamp duty value exceeds ₹50,000, it’s taxable.

o    For inadequate consideration, i.e., you buy it at a price lower than its stamp duty value by more than ₹50,000 or 10% of value – the difference is taxable.

3.  Movable Property – Shares, jewellery, paintings, bullion, and certain specified items are taxable if received free or for inadequate consideration exceeding ₹50,000 in value.

In short: If it has a price tag and you didn’t pay enough for it, the taxman wants his share of your joy.

When Love Still Wins Over Tax:

Luckily, the Act still respects relationships – and Diwali! Gifts are fully exempt when received from the following relatives (as defined in law, not as per your WhatsApp family group):

•  Spouse

•  Brother or sister (of you or your spouse)

•  Brother or sister of either parent

•  Lineal ascendant or descendant (of you or your spouse)

•  Lineal ascendant or descendant of spouse

•  And their spouses

So, Diwali gold chain from your brother – tax-free. But the same gold chain from your boss – taxable (unless it’s on the occasion of your wedding). Mere emotions don’t make exemptions – but relations do.

Other Tax-Free Occasions:

Certain occasions are also exempt irrespective of who gives you the gift:

1.  On the occasion of your marriage – Yes, you can enjoy both ladoos and lakhs tax-free!
(But note:only your marriage, not your anniversary or your child’s.)

2.  Under a will or inheritance – Because the law doesn’t tax emotions beyond the grave.

3.  From local authorities, charitable institutions, or trusts – Some gifts carry good intentions andgood exemptions.

A Quick Example:

Let’s say Mr. A receives the following during FY 2026–27:

•  ₹30,000 from a friend on his birthday

•  ₹40,000 from another friend on Diwali

•  ₹25,000 from his sister.

The total from non-relatives = ₹70,000 (> ₹50,000)
Hence, the entire ₹70,000 is taxable under “Income from Other Sources.”

The ₹ 25,000 from his sister? Exempt – siblings are safe territory.

Moral: Better to have a generous sister than too many generous friends!

When Gifting Becomes a Business Expense: Section 194R Enters the Party:

If you’re a business owner or professional, the story takes a twist. The government didn’t just stop at taxing the receiver – it made the giver responsible too, through Section 194R. From 1st July 2022, any person giving a benefit or perquisite to a resident in the course of business or profession must deduct 10% TDS before handing over the gift (if value > ₹20,000 per year). So if your company gives i-Phones to top dealers or expensive hampers to distributors – that’s not just goodwill, it’s a TDS event. And if you’re the recipient? That i-Phone is income under Section 28(iv). (Siri might help you set reminders – but not pay your tax dues!)

Tax Planning with Gifting: Yes, It’s Possible!

Smart taxpayers know – gifts can still be used wisely. Here’s how love can meet law:

1.  Gift to family members for investment: 
a) If gifted to spouse/minor child, clubbing provisions apply.
b) If gifted to major children or parents, income is taxed in their hands – often at a lower rate.

2.  Marriage gifts– Make full use of this one-time exemption.

3.  Gifts from relatives– Tax-free without limit. You can rebalance family assets efficiently.

4.  Through will or trust– Smooth estate planning, no gift tax in lifetime.

Common Gift Tax Myths – Burst like Firecrackers:

a)       “I got ₹40,000 each from three friends – all below ₹ 50,000, so exempt.”
Wrong! The limit applies to the total of all such gifts in a year.

b)       “Gift received in kind (say, gold or a car) isn’t taxable.”
Wrong again! If it’s specified property and crosses the limit, it’s taxable at fair market value.

c)       “If I receive it in my firm’s name, it’s tax-free.”
No escape! For firms or companies, such receipts are business income.

Festive Thought: Give Generously, But Declare Honestly:

Diwali reminds us that light only spreads when shared — and so does compliance!
There’s no harm in giving gifts, and the tax law doesn’t stop you. It simply asks that when generosity flows beyond a certain point, you let the government know.

So go ahead – exchange gifts, sweets, and smiles. Just remember that while love may be priceless, the tax department still loves numbers. Because in India, even the act of giving has a section number!

 

Happy Diwali!
May your lights shine bright, your sweets stay fresh, and your gifts remain (legally) tax-free!

[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com.  Other articles & response to queries are available at www.theTAXtalk.com]