Taxation of Gifts and Zero Rating of Gift Transactions In The Hands of Individual

Key Provisions:

Scope and Applicability of Section 56(2)(x)

• Applies to any person (Individuals, Hindu Undivided Families (HUFs), Firms, and other entities) who receives money or property without consideration or for inadequate consideration
• Effective from April 1, 2017
• Covers both movable (e.g. Cash, Cheque, Bank Transfer, Shares, Jewelry) and immovable property (e.g., Flat, Land, Buildings etc.)
• Triggered when the aggregate value of money or property received exceeds ₹50,000 in a financial year

Taxable Transactions

Section 56(2)(x) taxes the following receipts:

• Money: If a person receives money (cash, cheque, bank transfer) without consideration and the aggregate amount exceeds ₹50,000, the entire amount is taxable as Income.
• Immovable Property: If any immovable property is received without consideration and the stamp duty value (‘SDV’) exceeds ₹50,000, the whole SDV is taxable. If received for inadequate consideration (i.e., at a price lower than SDV by more than ₹50,000), the difference is taxable
• Movable Property: If specified movable property (such as shares, jewellery, paintings) is received without consideration and the fair market value (FMV) exceeds ₹50,000, the FMV is taxable. If received for inadequate consideration (i.e., at a price lower than FMV by more than ₹50,000), the difference is taxable

Exemptions:

Section 56(2)(x) does not apply in the following cases:

• Gifts received from specified relatives (such as Parents, Siblings, Spouse, etc.)
• Gifts received on the occasion of marriage, by way of inheritance, or under a will
• Gifts received in contemplation of death of the Payer or the Donor
• Money/Asset received under a will or inheritance

Gifts from relatives as defined above are fully exempt, regardless of value

Who Qualifies as a “Relative”?

For an individual, the following persons are considered relatives:

• Spouse of the Individual
• Brother or Sister of the Individual
• Brother or Sister of the Spouse of the Individual
• Brother or Sister of either of the parents of the Individual
• Any lineal ascendant or descendant of the Individual (e.g. Parents, Grandparents, Children, Grandchildren)
• Any lineal ascendant or descendant of the Spouse of the Individual
• Spouse of any of the persons listed above (i.e. Brother-in-law, Sister-in-law, Son-in-law, Daughter-in-law, etc.)

The above relationship is summarized in the following table for simplification and easier understanding: