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Section 56(2)(vii): Gifts Received by Individual and HUF

CA Rohan jain 
on 02 September 2016

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Analysis of TAXATION OF GIFTS !!

Crux:  Section 56(2)(vii): Gifts Received by Individual and HUF

1. This section is applicable only when gifts are received by individual and HUF. As per the Income Tax Act, receiver of gifts is taxed. Donor is not taxed under this section.

2. Gifts can be in cash or kind: Money given in cash or cheque, Immovable Property such as land or building or both, movable property such as shares, jewellery, drawings, paintings or sculptures, gold bars etc.

3. When it is not taxed:

When gift is

  • Received from a relative; or
  • Received on occasion of marriage of the individual; or
  • Received by way of a will or inheritance; or
  • Received in contemplation of death of the payer or donor; or
  • Received from Local Authority; or
  • Received from a fund, foundation, university, or other educational institution, hospitals, or any trust of institution defined in Section 10(23C);or
  • Money Received from a charitable Institution registered under section 12AA.

4. When and how it is taxed: Chargeable under the head "Income from Other Sources" in the receiver's income tax returns.

Cash:  When aggregate value of cash received exceeds Rs. 50,000, Whole amount is taxable, else not.

Movable Property :

(Received without any consideration) - If aggregate Fair Market Value exceeds Rs. 50,000- Taxable.
(Received for inadequate consideration) – if difference amount is more than Rs 50,000, the differential amount is taxable.

Immovable Property :

(Received without any consideration) - If stamp duty value exceeds Rs. 50,000- Taxable.
(Received for inadequate consideration) – if difference amount is more than Rs 50,000, the differential amount is taxable.

Summary:

Gift received

Condition

Tax treatment

Money

Total money received as gift exceeds Rs. 50,000.

Chargeable to tax

Immovable Property received as a gift

Stamp Duty value of property exceeds Rs.50,000

Stamp Duty value chargeable to tax

Immovable Property received with some consideration

Stamp Duty Less Consideration > Rs.50,000

Amount Chargeable to Tax = Stamp Duty - Consideration

Movable Property without any consideration

Fair Market Value of property > Rs.50,000

Total Fair Market Value is chargeable to tax

Movable Property with some consideration

Total Fair Market Value Less Consideration > Rs. 50,000

Amount Chargeable to Tax = Total FMV - Consideration

Notes

1. Donor or Donee may be resident or non-resident in India.

2. In Case, Cash or Movable Property received as gift- All Transactions of the previous year are to be considered. But in case of Immovable Property- Single transaction is considered.

3. Valuation:

The value of Movable property shall be Fair market value as on the date of receipt in accordance with the method given in rules 11U and 11UA.

In case of Immovable property, the value shall be the stamp duty value of the property.

4. Definition of Property: A Capital asset being

Immovable property being land or building or both, Shares and Securities, Jewellery, Archaeological collections, Drawings, Paintings, Sculptures, Any art of work, Bullion.

Thus Rural Agricultural Land if gifted is not taxed on the hands of the recipient as it is not a capital asset.

5.  These provisions do not apply to stock in trade, raw material and consumable stores of any business of such recipient.


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