The Finance Act, 2017 inserted a new clause (x) in sub-section (2) of section 56 so as to provide that receipt of the sum of money or the property by any person without consideration or for inadequate consideration in excess of Rs. 50,000 shall be chargeable to tax in the hands of the recipient under the head “Income from other sources“.

Further, the following are the concerns in respect of the aforesaid section:

(i) The scope of section is widened, but at the same time, the limit of exemption of Rs. 50,000 fixed as back as in 2006, has not been increased considering the inflation and reduction in the value of money.

(ii) Revival of Sick Companies are necessary and is in overall interest of the economy. Taxing the amount received by the sick companies may not be fair. Considering this, subvention granted by parent company to subsidiary company to recoup the financial losses or to improve the financial health of the company was considered as capital receipt.


It is suggested that:

i. In order to avoid the unintended hardship to small taxpayer, the limit of exemption may be increased from Rs. 50,000 to Rs. 5 lakhs.

ii. Suitable exception to carve out the case of subvention granted by parent company to subsidiary company from the purview of section 56(2)(x) may be provided.

Source-  ICAI Pre-Budget Memorandum–2018 (Direct Taxes and International Tax)

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June 2021