Section 56(2)(x): Taxability of Gifts

1. What is Section 56(2)(x) of Income Tax Act?

• Section 56(2)(x) contains provisions relating to taxability of Money or property received without consideration.
• It can also be regarded as a section containing provisions relating to taxability of gifts.

2. Scope of Gifts

Section 56 divides gifts into three types

1. Money
2. Movable property
3. Immovable property

3. Taxability of Money given as gift

If the amount of money received exceeds Rs. 50,000/-

1. The entire money received is taxable.

4. Taxability of movable property received without consideration or for inadequate consideration

5. What do you mean by FMV?

• FMV means Fair Market value
• FMV is determined as per the provisions contained in Rule 11UA of the Income tax rules, 1962

6. Taxability of Immovable Property received without consideration or for inadequate consideration

7. What do you mean by SDV?

• SDV means Stamp duty value
• Stamp duty value means the value adopted by any authority of the Central government or a state Government for the purpose of payment of stamp duty for the immovable property.

8. What is the frequency at which the threshold limit of 50,000 should be analyzed?

• With respect to money and movable property,
  1. The aggregate of money received or aggregate of FMV of all the properties or aggregate of difference (as mentioned in FAQ no 4) in the financial year as exceeds Rs. 50,000 will be taxable.
• With respect to immovable property,
  1. The SDV and the difference (as mentioned in FAQ no 6) should be analyzed on a property to property basis and not on aggregate basis to determine the taxability.

9. At which date should the SDV be considered, if the date of agreement and date of registration is different?

• Consider the SDV on the date of agreement if the consideration has been paid by way of an account payee cheque or bank draft or by use of ECS through a bank account or through such other electronic mode as may be prescribed on or before the date of agreement
• In any other case, consider the SDV as on the date of registration.

10. What are the exceptions to section 56(2)(x) of the Income Tax Act?

Gifts (i.e. money, immovable property and movable property) received from the following person or situation is not taxable:

• from any relative or
• on the occasion of the marriage of the individual or
• under a will or by way of inheritance or
• due to the death of the payer or donor or
• from any local authority
• from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred u/s 10(23C)
• from or by any trust or institution registered under section 12Aor section 12AA or  section12AB
• from an individual by a trust created or established solely for the benefit of relative of the individual.
• Any trust, university, fund, educational institution which is established for charitable/religious/educational /philanthropic purpose
• By way of transactions not regarded as transfer u/s 47(i) or (iv) or (v) or (vi)or (via) (viaa) or (vib) or (vic) or (vica)or (vicb) or (vid) or (vii)
• from such class of persons and subject to such conditions, as may be prescribed.

11. What does the term relative mean as per section 56(2)(x) for the purpose of exemption?

• In case of an individual-
  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 the person referred to in items (B) to (F)
• In case of a Hindu undivided family-
  1. any member thereof.

12. Scope of the term “property” for the purpose of section 56(2)(x)?

The term property includes the following,