All About Provision of Section 56(2)(X) of Income Tax Act, 1961

Background of the provision:

Over the period of time, the Government of India has time to time amend these provisions. Before 2017 Gift was taxable in hands of Individual, HUF, Firm and Closely held Company at tax is levied at the rates prescribed by Finance Act.

The scope of chargeability under the said section can be briefly summarized as under:

Section	Nature of Receipt	Consideration	Taxability Threshold
56(2)(vii)(a)	Any sum of money	No consideration	No consideration
56(2)(vii)(b)	Any immovable property	No consideration	Stamp duty value exceeding Rs. 50,000/-
		Inadequate consideration	Difference between stamp duty value and consideration exceeding Rs. 50,000/-
56(2)(vii)(c)	Any property, other than immovable property	No consideration	Fair market value exceeding Rs. 50,000/-
		Inadequate consideration	Difference between fair market value and consideration exceeding Rs. 50,000/-

Section 56(2)(vii) is applicable to receipts by Individuals/ HUF for the period commencing 1 October 2009 and ending 31 March 2017.

With effect from 1 April 2017, the Finance Act, 2017 has inserted a new section 56(2)(X): Purchase/Gift received by any person;

Where any person receives, in any previous year, from any person or persons on or after the 1st day of April, 2017-

a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;

b) any immovable property-

A. without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;

B. 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 ten per cent of the consideration:

Provided that 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:

Provided further that the provisions of the first proviso 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 through such other electronic mode as may be prescribed, on or before the date of agreement for transfer of such immovable property:

Provided also that where the stamp duty value of immovable property is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 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;

c) any property, other than immovable property: –

i. without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, 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 fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration

“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;

Stamp duty value” means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property;

Clarification

Section 56(2)(X) shall not apply if property is in nature of stock in trade, raw material and consumable stores of business in hands of recipients.

Notification No. 96/2019

Section 56(2)(X) not applicable if immovable property received by a resident of unauthorised colony in the National Capital Territory of Delhi, where CG notification in the official gazette, regularised the transaction of such immovable property based on the latest Power of Attorney, Agreement to Sale, Will, possession letter and other documents including documents evidencing payment of consideration for conferring or recognising right of ownership or transfer or mortgage in regard to such immovable property in favour of such resident.

Section 49(4) : Cost of Acquisition

Where the capital gain arises from the transfer of a property, the value of which has been subject to income tax under section 56(2)(X), the cost of acquisition of such property shall be deemed to be the value which has been taken into account for the purposes of said clause (X).

 Let’s understand above provision with example;

Example

Mr. Jupiter sold an immovable property to Mr. Neptune of Rs. 70,00,000 on 10-12-2020, where SDV was Rs. 1,10,00,000. The agreement was, however, entered into 14-02-2020 when SDV was 80,00,000 Mr. Jupiter had received part payment of Rs. 7,00,000 by electronic mode through bank account from Mr. Neptune on date of agreement. And received balance payment on date of registration which was 10-12-2020.

Part A: Property held as capital asset for Mr. Jupiter and Neptune.

1) In hands of Mr. Jupiter;

Full value of consideration	80,00,000
(i) Sale Price 70,00,000 (ii) SDV 80,00,000 Section 50C apply
Less : ICOA/COA	XXXX
LT/ST CG	XXXX

2) In hands of Mr. Neptune;

Since both the condition pf Section 56(2)(X)(b)(B) satisfied where difference between sale price and SDV is more than 50,000 and SDV is more than 110% of sale price, So Rs, 10,00,000 (80,00,000-70,00,000) is taxable under head of Income from Other Sources as per Section 56(2)(X).

Part B: Property held as Stock in trade for Mr. Jupiter and Neptune;

1) In hands of Mr. Jupiter;

Full value of consideration	80,00,000
(i) Sale Price 70,00,000 (ii) SDV 80,00,000 Section 42CA apply
Less : Cost of Stock	XXXX
Profit	XXXX

2) In hands of Mr. Neptune;

Section 56(2)(X) shall not apply as per explanation given above.

Part C: Property is capital asset in hands of Mr. Jupiter and stock in trade in hands of Mr. Neptune;

1) In hands of Mr. Jupiter;

Full value of consideration	80,00,000
(i) Sale Price 70,00,000 ii) SDV 80,00,000 Section 50C apply
Less : ICOA/COA	XXXX
LT/ST CG	XXXX

2) In hands of Mr. Neptune;

Section 56(2)(X) shall not apply as per explanation given above.

Part D:  Property held as stock in trade in hands of Mr. Jupiter and capital asset in hands of Mr. Neptune;

1) In hands of Mr. Jupiter;

Full value of consideration	80,00,000
(i) Sale Price 70,00,000 (ii) SDV 80,00,000 Section 42CA apply
Less : Cost of Stock	XXXX
Profit	XXXX

2) In hands of Mr. Neptune;

Since both the condition pf Section 56(2)(X)(b)(B) satisfied where difference between sale price and SDV is more than 50,000 and SDV is more than 110% of sale price, So Rs, 10,00,000 (80,00,000-70,00,000) is taxable under head of Income from Other Sources as per Section 56(2)(X).

Following Gifts are not Taxable under head of Income from Other sources;

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 or

v) from any local authority 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 clause (23C) of section 10; 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 or

ix) by way of transaction not regarded as transfer under clause (i) or 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

x) from an individual by a trust created or established solely for the benefit of relative of the individual.

xi) any compensation or other payment, due to or received by any person, by whatever name called, in connection with the termination of his employment or the modification of the terms and conditions relating thereto

Relatives means

i. spouse of the individual;

ii. brother or sister of the individual;

iii. brother or sister of the spouse of the individual;

iv. brother or sister of either of the parents of the individual;

v. any lineal ascendant or descendant of the individual;

vi. any lineal ascendant or descendant of the spouse of the individual;

vii. spouse of the person referred to in clauses (ii) to (vi);

Disclaimer: The above expressed views are purely the personal views of the authors. The possibility of other views on the subject matter cannot be ruled out. So the readers are requested to check and refer relevant provisions of statute, latest pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The authors are not responsible in anyway.