Taxability of Gifts Received by Individual or HUF Member u/s 56(2)x
People from all over the world love to present gifts to their loved ones on different occasions. In this practice, it is seen in several cases that valuable assets/large sums of money are transferred and thus, from FY 2004-05 onwards, Government has considered to add tax on gifts to be applicable as receiver’s income under the head ‘Income from Other Sources’. Gifts, of type movable/immovable assets as received by an individual/a member of HUFs without/with consideration more than a threshold value would be treated as taxable under the clause (x) of Section 56(2) of Income Tax Act that is introduced in Finance Act 2017.
Note: A ‘Gift’ as defined u/s 122 of the Transfer of Property Act, 1882, is the transfer of any movable/immovable property which has been made by one person voluntarily and without any consideration to another person. ‘Donor’ is one who presents a gift and ‘Donee’ is the person who is receiving a gift.
Types of Gifts Eligible of Taxation u/s 56(2)x income tax act.
Receipt provided for a sum of money or immovable property that is more than INR 50 thousand is taxable in the hands of the receiver. The Gifts include:
Gift in Cash:-
- Money received without consideration with aggregate value more than INR 50 thousand. This whole amount is taxable.
- Immovable property without consideration, when its Stamp Duty Value is more than INR 50 thousand. Whole Stamp Duty amount is taxable.
- Immovable property with consideration, when its Stamp Duty more than the highest amount of the following:
- INR 50 thousand
- 5% of the consideration
Difference of Stamp Duty and Consideration Value is taxable.
- Aggregate Fair Market Value (FMV) of movable property (defined and specified) if it is more than INR 50 thousand. This whole amount is taxable.
- Movable property (defined and specified) with consideration, lower than FMV but more than INR 50 thousand. Difference of Property Value and Consideration Value is taxable.
Tax-Free Gifts as Defined u/s 56(2)x (Fully Exempt under Income Tax.)
Certain gifts are considered Tax-Free u/s 56(2)x, if they satisfy any of these conditions:
- Gifts given by relatives is exempt.
- Any gift of the type movable/immovable asset that is received from specific relatives is tax free.
For individuals, gifts from these relatives are tax-free:
- Any inherent ascendant or descendant
- Brother/Sister of either of the parents
- Brother/Sister of the spouse
- Any inherent ascendant or descendant of the spouse
For HUFs, gifts from these relatives are tax-free:
- Any member
- Gifts received in these circumstances/from the source as mentioned:
- Provision in a will/Inheritance
- Protocol followed after the death of a donor
- Local authority as defined in clause 20 of Section 10
- Any fund/Foundation/Other educational institution/University/ Hospital/Other medical institution/Any trust or institution as defined u/s 10
- Any trust/ institution registered under section 12A or section 12AA
- Any transaction from trust/institution that is not regarded as transfer u/s Section 47
- Any individual by a trust that serves for the benefit of any relative of an individual
- Compensation (other than payment), received to the employee in relation to the termination of employment/modification of employment terms and conditions applicable in such circumstances
Note: Any gifts received from a person, who is not a relative are taxable if they satisfy the tax eligibility as mentioned in Section 56(2)x.
List of Donors as per definition of relatives under Income Tax Act
- Father (Papa or Pitaji)
- Mother (Maa or Mummy)
- Brother (Bhai)
- Sister (Bahin)
- Son (Beta or Putra)
- Daughter (Beti or Putri)
- Grand Son (Pota or Potra)
- Grand Daughter (Poti or Potri)
- Husband (Pati)
- Wife (Patni)
- Sister’s Husband (Jija)
- Brother’s Wife (Bhabhi)
- Wife’s Brother (Sala)
- Wife’s Sister (Sali)
- Husband’s Brother (Dewar)
- Husband’s Sister (Nanad)
- Mother’s Brother (Mama)
- Mother’s Sister (Mausi)
- Mother’s Sister Husband (Mausa)
- Wife’s brother’s wife (Sala Heli)
- Father’s Brother (Chacha or Tau)
- Father’s Brother’s Wife (Chachi or Tai)
- Father’s Sister’s Husband(Fufa)
- Father’s Sister (Bua)
- Grand Father (Dada, Pardada)
- Grand Mother (Dadi, Pardadi)
- Daughter’s Husband (Jawai)
- Son’s Wife (Bahu or Putra Vadhu)
- Spouse Father (Sasur)
- Spouse Mother (Sas)
- Spouse Grand Father (Dada Sasur)
- Spouse Grand Mother (DadiSas)
- Brother’s Wife (Bhabhi)
- Mother’s Brother’s Wife (Mami)
- Husband’s Brother’s Wife (Devrani or Jithani)
Author is a Krishna Gopal Varshney and can be reached at E-Mail:- email@example.com