What Is Considered a Corporate Gift Under Tax Laws?
We know that understanding what corporate gift tax is can be a complex concept, but we are here to simplify that.
As per the IRS, a gift given to clients, customers, or employees that in turn benefits the company in some way or the other is referred to as a corporate gift. For example, appreciating your clients for their support or giving gifts to employees to motivate them will all come under corporate gifts.
As per the Income Tax Act 1961, you can claim deductions on gifts under Section 37(1), if they fall under the following conditions -
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They are completely and exclusively for business
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The gifts aren’t personal
Taxability of Corporate Gifts in India
Here are some examples of the type of gifts that may be eligible for tax deduction.
Diwali gifts for clients:
Since these gifts are meant for clients, they benefit your business and are exclusively given from that viewpoint; therefore, you can claim deductions on them.
Employee appreciation hampers:
Giving gifts to employees for their welfare also comes under business-related activity and follows both the conditions mentioned above, so it’s eligible for deduction.
Promotional giveaways:
Since these giveaways are a way to promote your business, you can claim deductions on the gifts you give during this time.
Similarly, if you give a birthday gift to anyone not related to your business, it’ll be considered a personal gift and will therefore not be eligible for tax deduction.
You must maintain clear records of your gifting expenses to support the claim that they were solely for business purposes.
Gift Value Limits and Tax Exemption Thresholds
Let’s make it crystal clear what the income tax corporate gift limit is, so that you can make a wise decision when giving corporate gifts.
If a company spends over ₹50,000 per recipient per year on clients or business associates, it’ll be liable to pay GST under certain parameters. For instance, if your business claims ITC (Input Tax Credit) on the items they use for gifting, then make sure that those corporate gifts adhere to the GST regulations to avoid the ITC becoming null and void.
For employees, gifts up to ₹5,000 per employee per financial year are exempt from tax.
At The Good Road Gifting, we ensure that our clients make the most of the money they spend by helping them choose both creative and compliant gifts.
Claiming Corporate Gifts as Business Expenses
Now, if you have indulged in gifting to your employees, clients, etc., then how do you claim corporate gift tax on it? Here’s how to go about this the right way.
Keep proper documentation: Whatever expense you make towards gifting, make sure the invoices, GST bills, and recipient lists are updated.
Prefer kind over cash: Cash gifts aren’t eligible for deduction; therefore, choose kind over cash.
Ensure a business link: There must be a link between the gifting purpose and your business, like promotion, marketing, and so on.
Stay updated: Consult a CA or tax advisor on the latest developments regarding corporate gift tax.
Common Mistakes to Avoid
Some of the common mistakes that many businesses make when claiming tax deductions on gifts are -
Exceeding the Deduction Limit:
The deduction limit varies based on the recipients, so make sure that you don’t exceed that limit. Otherwise, you’ll be liable to pay tax on those gifts.
Claiming Personal Gifts:
Like we had mentioned before, you can’t claim a deduction on personal gifts, like on birthdays, anniversaries, etc., since they are not related to your business.
Considering Employee Gifts as Tax-Free:
Not all corporate gifts to employees are tax-free. The gifts should be moderate and occasional, so they can be considered under tax exemption.
Wrongly Classifying Gift Items:
If you’re giving branded products to your clients or employees, such as pens, mugs, etc., then they might be considered a part of advertising, and the rules for that differ.
Conclusion
This was everything you needed to know about the corporate gift tax. We’ve simplified what this tax is, how you can benefit from it, and the income tax corporate gift limit that you must adhere to. The Good Road ensures that you make a strategic and tax-efficient move when giving gifts to clients, employees, or other business associates. We are happy to help you with your gifting needs, keeping the tax regulations in mind.
