The Indian Income Tax Act, 1961, governs the taxation of various sources of income in India. One such source is income from other sources, which includes the taxability of gifts of money and property. In this blog post, we will explore the provisions of Section 56(2)(x) of the Income Tax Act, which deals with the taxability of such gifts.
Income of any person to include not only gift of money from any person(s) but also the gift of property (whether movable or immovable) or property acquired for inadequate consideration
(1) Where any person receives, in any previous year, from any person or persons on or after 1.4.2017, the following income, it shall be chargeable to income-tax under the head “income from other sources” as per section 56(2)(x):
|Particulars of income||Amount taxable under the head “income from other sources”|
|(A) Any Sum of Money,—
—without consideration, the aggregate value of which exceeds Rs.50,000
|the whole of the aggregate value of such sum|
|(B) Any Immovable Property,—
(i) without consideration, the stamp duty value of which exceeds Rs.50,000
the stamp duty value of such; property
|(ii) for a consideration, the stamp duty value of such property as exceeds such consideration, if the amount of such excess is more than the higher of the following amounts, namely:—
(i) the amount of fifty thousand rupees; and
(ii) the amount equal to 10%, of the consideration
|the stamp duty value of such property as exceeds the consideration received|
|1. Where the date of agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of agreement may be taken for the purposes of this sub-clause. [First proviso to section 56(2)(x)(b)]
2. The provisions of first proviso mentioned above shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account or such other electronic mode as may be prescribed, on or before the date of agreement for transfer of such immovable property. [Second proviso to section 56(2)(x)(b)]
3. Where the stamp duty value of immovable property is disputed by the assessee on grounds mentioned in section 50C(2), the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and section 155(15) shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of this sub-clause as they apply for valuation of capital asset under those sections. [Third proviso to section 56(2)(x)(b)]
|(C) Any property, other than immovable property,—
(i) without consideration, the aggregate fair market value of which exceeds Rs.50,000;
the whole of the aggregate fair market value of such property
|(ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding Rs.50,000:||the aggregate fair market value of such property as exceeds such consideration|
1. “Fair market value” of a property, other than an immovable property, means the value determined in accordance with the method as may be prescribed.
2. As per Explanation to section 56(2)(x) read with Explanation to section 56(2)(vii), “Property’ means the following capital asset of the assessee, namely:—
(i) immovable property being land or building or both;
(ii) shares and securities;
(iv) archaeological collections;
(viii) any work of art; or
Amendment made by the Finance Bill, 2022 :
Explanation to Section 56(2)(x) Amended [w.e.f. AY 2023-24]
In order to provide for taxing the gifting of virtual digital assets, the Finance Bill, 2022 has amended Explanation to section 56(2)(x) of the Act to inter-alia, provide that for the purpose of the said clause, the expression “property” shall have the meaning assigned to it in Explanation to section 56(2)(vii) and shall include virtual digital asset.
Section 56(2)(x), shall not apply to any sum of money or any property received—
(i) from any relative; or
(ii) on the occasion of the marriage of the individual; or
(iii) under a will or by way of inheritance; or
(iv) in contemplation of death of the payer or donor, as the case may be; or
(v) from any local authority as defined in the Explanation to section 10(20); or
(vi) 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 section 10(23C); or
(vii) from or by any trust or institution registered under section 12A or section 12AA; or
(viii) 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) or (v) or (vi) or (via); or
(ix) by way of transaction not regarded as transfer under section 47(1) or (iv) or (v) or (vi) or (via) or (viaa) or (vib) or (vie) or (vica) or (vieb) or (vid) or (vii) or (viiac) or (viad) ; (viiae) or (viaf) or
(x) from an individual by a trust created or established solely for the benefit of relative of the individual; or
(xi) from such class of persons and subject to such conditions, as may be prescribed. [inserted w.e.f A. Y. 2020-21] In other words, the Board has been empowered to prescribe transactions undertaken by certain class of persons to which the provisions of section 56(2)(x) shall not be applicable. [See Rule 11UAC below in this regard]
Amendment made by the Finance Bill, 2022
The Finance Ministry had released a press statement dated: 25-6-2021 where in was announced that income-tax shall not be charged on the amount received by a taxpayer for medical treatment from any person for treatment of COVID-19 during FY 2019-20 and subsequent years.
It was further announced that in order to provide relief to the family members of such taxpayer, income-tax exemption shall be provided to ex-gratia payment received by family members of a person from the employer of such person or from other person on the death of the person on account of COVID-19 during FY 2019-20 and subsequent years. Also, it was stated that the exemption shall be allowed without any limit for the amount received from the employer and the exemption shall be limited to Rs. 10 Lakh in aggregate for the amount received from any other persons.
Valuation of Gifts
When determining the value of gifts for tax purposes, the fair market value of the gift is considered. If the gift is in the form of immovable property, the stamp duty value is taken as the fair market value. Additionally, any income earned from the gifted property is also taxable in the hands of the recipient.
Clubbing of Income
In certain situations, the income from the gifted property may be clubbed with the income of the person making the gift. This applies when the gifted property is transferred to a spouse, minor child, or any other person for inadequate consideration. The income generated from such property is then taxable in the hands of the person making the gift.
Reporting of Gifts
It is important to note that gifts exceeding INR 50,000 received during a financial year must be disclosed in the income tax return. The details of the donor, such as their name, address, and PAN, should also be provided.