Taxability of gifts [Section 56(2) (x) of Income Tax Act, 1961]

What is Section 56(2) (x) of Income Tax Act, 1961?

Section 56(2) (x) of Income Tax Act, 1961 states that where any person “receives” any “specified property” (which includes shares and securities without consideration or for a consideration which is less than its fair market value, as determined in accordance with the applicable rules (tax FMV), then, the tax FMV (where the property is received without consideration) or the excess of the Tax FMV over the consideration paid would be subject to tax in the hands of the recipient of “property” as “income from other sources”.

Points to be noted with respect to this section:

• Cash means all monetary forms like cheque, online transfer, FD, DD or any other form.
• The above categories limit the amount of cash up to ₹50,000.
• If the gifts are received from Employer then these are taxable under the head of Salaries. In case of cash gift- fully taxable, in case of gift in kind- fully taxable when value of gift exceeds ₹50000.
• Immovable property (inadequate consideration): If consideration is less than the stamp duty value of the property and the difference between the stamp duty value and consideration is more than the higher of-
  1. ₹50000 and
  2. 5% of consideration

Then the difference between the stamp duty value and consideration shall be chargeable to tax in the hands of the assessee as “Income from other sources”.

• The Section 56(2) (x) would apply only to the specified property which is in the nature of a capital asset of the recipient and not stock- in – trade, raw material or consumable stores of any business of the recipient.

Exceptions to Section 56(2) (x):

This section does not apply to following if any sum of money or any property received:

• From any relative
• On the occasion of marriage of individual
• Under a will or by way of inheritance
• In contemplation of death of the payer or donor, as the case maybe
• From any local authority as defined in the explanation to section 10(20)
• By any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in section 10(23C)(iv)/(v)/(vi)/(via).
• Amalgamations, Successions, Demerger which is not a transfer under section 47.
• From or by any trust or institution registered under section 12AA
• From an individual by a trust created or established solely for the benefit of relative of the individual.

Key words:

• Property:

A capital asset of the assesse, namely:

• • Immovable property being land or building or both,
  • Shares and securities
  • Jewellery
  • Archaeological collections
  • Drawings
  • Paintings
  • Sculptures
  • Any work of art or bullion

• Relative:

In case of an individual:

1. 1. Spouse of the individual
   2. Brother or sister of the individual
   3. Brother or sister of the spouse of the individual
   4. Brother or sister of either of the parents of the individual
   5. Any lineal ascendant or descendant of the individual
   6. Any lineal ascendant or descendant of the spouse of the individual
   7. Spouse of any of the persons referred to above.

In case of Hindu Undivided Family, any member therof.