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Introduction

In today's scenario, the custom of gift sharing is in much trend. Also since the Diwali festival is approaching, many people exchange very valuable gifts.

Taxation of gifts as per income tax

While exchanging such gifts, a doubt arises whether Tax has to be paid on same.

Though gifts are the outside purview of GST, being not in nature of supply as per Section 7 of CGST Act, 2017. However, gifts are taxable as per Income tax act, 1961 under Section 56(2)(x).

Let's discuss the taxability of gifts as per income tax in detail.

Section 56(2)(x) of the income tax Act, 1961

This section covers taxability of gifts under Income tax act

For the purpose of this section, gifts are categorized as:-

  • Sum of money received without consideration.
  • Immoveable property received without consideration
  • Immoveable property received for inadequate consideration
  • Moveable property received without consideration
  • Moveable property received for inadequate consideration

Now let’s discuss taxability of each of above point one by one:-

1. Sum of money received without consideration.

If a person receives cash exceeding Rs. 50000 in aggregate during a financial year, then the entire amount is taxable.

For example, Mr. Aman receiving Rs. 40000 cash from Mr. Akshay and

Rs. 20000 cash from Mr. Abhay has to pay tax on entire Rs. 60000 since the aggregate amount of cash in a financial year exceeds Rs. 50000

2. Immovable property received without consideration

If a person receives any immovable property without consideration from any person, and if the Stamp duty value of property exceeds Rs. 50000, then the Stamp duty value shall be considered as income from other sources and the person has to pay tax accordingly.

3. Immovable property received for inadequate consideration

If a person receives any immovable property for a consideration from any person and

If the Stamp duty value of property > consideration paid and the difference amount between the two is greater than higher of the following:-

  • 50000
  • 5 % of consideration.

Then the difference amount between Stamp duty value and consideration paid shall be chargeable to tax.

Also, it may happen that date of agreement deciding the consideration to be paid for the property and date of registration of property are different. Most probably Amount of stamp duty value of the property may also vary between these 2 dates.

For example, Stamp duty value on 01.01.2018 of a property is Rs. 5 lakhs but on date of actual registration as on 01.10.2019, the stamp duty value is Rs. 6 lakhs.

Also, suppose in the above case consideration fixed for the transaction is Rs. 4.80 lakhs.

In such case, if stamp duty value of the date of the agreement is taken ie. 5 lakhs, then there is no taxability since Rs. 5 lakhs less Rs. 4.80 lakhs =Rs. 20000 i.e. less than Rs. 50000 and 5% of 4.8 lakhs i.e. 24000

However, if the stamp duty value of date of registration is taken i.e. Rs. 6 lakhs, then obviously it will be taxable since the difference between consideration and stamp duty value exceeds Rs. 50000.

Therefore, for such case provisions have been made to consider the stamp duty value as on the date of the agreement into consideration provided,

Full amount of consideration or part thereof is paid by way of an account payee cheque, bank draft or electronic clearing system (ECS) or through such other electronic mode as may be prescribed.

4. Moveable property received without consideration

If a person receives any moveable property without consideration from any person, and if the Fair market value of property exceeds Rs. 50000, then the Fair market value (FMV) shall be considered as income from other sources and the person has to pay tax accordingly.

5. Moveable property received for inadequate consideration

If a person receives a moveable property and the Fair market value of property > Consideration paid and the difference between the two exceeds Rs. 50000, then the entire difference shall be considered as income from other sources.

Exception to general provision of section 56(2)(x)

The below are those cases, wherein the above provisions will not apply on sum of money or property if received:-

  • from any relative; or
  • on the occasion of the marriage of the individual; or
  • under a will or by way of inheritance; or
  • in contemplation of death of the payer or donor, as the case may be; or
  • from any local authority as defined in the Explanation to clause (20) of section 10; or
  • from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or
  • from or by any trust or institution registered under section 12A or section 12AA; or
  • by any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10; or
  • by way of transaction not regarded as transfer under clause (i) or 71[clause (iv) or clause (v) or] clause (vi) or clause (via) or clause (viaa) or clause (vib) or clause (vic) or clause (vica) or clause (vicb) or clause (vid) or clause (vii) of section 47; or
  • from an individual by a trust created or established solely for the benefit of relative of the individual.
    • Following clause (XI) shall be inserted after clause (X) of proviso to clause (x) of sub-section (2) of section 56 by Act No. 23 of 2019, w.e.f. 1-4-2020 :
  • from such class of persons and subject to such conditions, as may be prescribed.

Some important definitions

Relative:

 (i) in case of an individual -

 (ii) in case of a Hindu undivided family, any member thereof;

 

 (A) spouse of the individual;
 (B) brother or sister of the individual;
 (C) brother or sister of the spouse of the individual;
 (D) brother or sister of either of the parents of the individual;
 (E) any lineal ascendant or descendant of the individual;
 (F) any lineal ascendant or descendant of the spouse of the individual;
 (G) spouse of the person referred to in items (B) to (F); and

Property:

"property" means the following capital asset of the assessee, namely:

(i) immovable property being land or building or both;
(ii) shares and securities;
(iii) jewellery;
(iv) archaeological collections;
(v) drawings;
(vi) paintings;
(vii) sculptures;
(viii) any work of art; or
(ix) bullion;

 
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Category Income Tax, Other Articles by - CA Himanshu Gandotra 



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