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Section 56 – Taxation of gift received

As per income tax act gifts received are taxable in the hands of recipient under the head Income From Other Sources and there is no taxation for the donor. Here gift means any sum of money, Moveable property or immovable property which received without consideration or inadequate consideration.

Sonu Aggarwal

Taxation of gift received Under Section 56(2) of income tax act 1961

Taxation on gift provided U/S 56(2) of income tax act 1961.

As per income tax act gifts received are taxable in the hands of recipient under the head of other Sources and there is no taxation for the donor.

Here gift means any sum of money, Moveable property or immovable property which received without consideration or inadequate consideration.

Here property term include the following

  • Land and building (immovable)
  • Shares and securities (Securities Include debenture, bonds etc).
  • Jewellery (Jewellery includes ornaments made of gold, silver, platinum or any other precious metal whether or not attach any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel .Precious or semi-precious stones also include in the term of jewelry, whether it is set or not in any furniture, utensil or other article or worked or sewn into any wearing apparel)
  • Archeological collection
  • Drawings
  • Paintings
  • Sculpture
  • Any work of art
  • Bullion (Gold And silver in their purest form)

There are some rules provided by income tax act 1961 for taxation on gift whether gift is taxable or not. For simplification I   divided this rules in two head

i. Exempted Gift

ii.  Taxable Gifts

Exempted Gift

Any sum of amount received (as gift) without consideration up to Rs 50000 in one year is not taxable at anywhere. Further following receipts without consideration are also not income :

i. from any relative

ii. Gifts received on the occasion of marriage of an individual even from non relatives are not an income

iii. under a Will or by way of inheritance;

iv. in contemplation of death of payer;

v. from local authority as defined in Explanation to section 10(20);

vi. educational or medical institution or fund etc. referred to u/s. 10(23C);

vii. trust or institution registered u/s. 12AA.

viii. by any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10; or

ix.   by way of transaction not regarded as transfer under clause (i) or 11[clause (iv) or clause (v) orclause (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.

 The “relatives” term defines by the Income Tax act as follows :

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).

viii. In case of a Hindu undivided family, any member thereof;

For Example:

If one of your friend gift u Rs 40000 and another one gift u 10000 then there is no need to pay tax, but if such (gift Received) amount exceeds Rs 50000 than whole amount of money will be taxable

E.g: If one of your friend gift u Rs 40000 and another one gift u 20000 then the whole 60000 shall be taxable and recipient has to pay tax as per his slab rate

Conclusion

Any amount received as gift up to Rs 50000 in one year is not taxable in the hand of recipient. But if amount exceeds Rs 50000 than whole received amount will be taxable. There is limit provided on amount Received in one year as a gift not on amount received by per person

Gift Received from Relative

Any sum of money or kind received as gift from relatives will not be taxable at all means there is no limit specified for amount (gift) received by relative hence any amount received by relatives is not taxable

e.g If your brother gift u Rs 50, 00,000  than it will not be taxable in the hand of recipient (you).

Gift received On occasion of the marriage of the individual

Gift received by any person (without limit) on the occasion of the marriage is tax free in the hand of individual (recipient).

For example: if your friend or relative or any other person gift u on your marriage than nothing will be taxable.

Gift received under a will or by way of inheritance

Any sum of money or any property is received under a will or by way of inheritance it is totally exempt from Gift Tax. So if any person gets a Property worth Rs 50, 00,000 and some other things worth Rs 30, 00,000 through inheritance, than he will not have to pay any tax on such gift received.

In contemplation of death of the payer

Any sum of money or any property is received in contemplation of death is also exempt from gift tax.

A gift received in contemplation of death means when men, who is ill and expects to die shortly because of his illness, give his movable property possession to another to keep as a gift in case if he will die because of that illness.

Such a gift may be resumed by the giver; and shall not take effect if he recovers from the illness during which it was made; nor if he survives the person to whom it was made.

Any local authority, trust or university etc.                 

There is no tax liability occur when any amount received from local authority trust or university as a gift hence recipient  is not liable to pay tax on such gift.

Conclusion

Any amount received up to Rs 50000 or

Immovable property received (which stamp duty value is up to Rs 50000) or

Movable property received which FMV up to Rs 50000 in one year is not taxable in the hand of recipient. But if amount and value exceeds Rs 50000 than whole received amount and property value will be taxable.

Note

Only single transaction is considered for calculating threshold limit of Rs.50000/- In the case of immovable property received as a gift. Where as in other cases (cash or movable property) all transactions in financial year are taken into consideration for calculating threshold limit of Rs.50000/-

Taxable gift

  • When any amount received exceeds Rs 50000 (from other than specified relatives) than whole received amount will be taxable or
  • Any immovable property is received without consideration if stamp duty value of such property is more than Rs.50000/- than stamp duty value of such property will be taxable.

Here 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.

For Simplification if  property purchase value is 50lac but for the purpose of valuation of stamp duty it is taken by authority 65lac than in the case of gift received such property value  65 lac will be taken and tax will be charge on 65 lac value.

  • If any immovable property is received for a inadequate consideration, (means consideration is less than stamp duty value of property) which stamp duty value exceeding Rs.50, 000, the stamp duty value of such property as Exceeds such consideration will be chargeable.
  • For example if consideration paid 120000 and stamp duty value is 200000 than 80000 will be chargeable u/h other sources.

However wef A.y 2019-20, the above provision has been amended which is as follows:U/s 562(x)

If any immovable property is received For a consideration , the stamp duty value of which exceeds  105 percent of the consideration and the difference between stamp duty and consideration exceeds Rs 50000, than the difference amount between stamp duty and consideration  shall be taxable as income from other source.

It should be noted that, that where the date of the 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 the agreement may be taken for the purposes provided that the the amount of consideration for the said immovable property , or a part thereof, has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property.

2. Movable property is received without consideration which aggregate fair market value is more than Rs.50000/- than tax will be charge on aggregate fair market value of movable property.

If movable property received for a lesser consideration, means consideration is less than the Fair market value but Fair market value exceeds by Rs.50, 000, than the fmv as exceeds such consideration will be chargeable to tax.

For example if Gold Jewellery Rs 1050000 received for consideration 200000 than whole 850000 will be taxable in the hand of recipient.

Also Read:

S.56 pertaining to gifts, deemed gifts / under-valuations

Sec. 56(2)(viib) not applicable to startups having paid up share capital upto Rs. 10 crore

Taxation of Gift- Under Income Tax

(Republished With Amendments)

(Author can be reached at sonuaggarwal08 @ gmail.com)

Categories: Income Tax

View Comments (40)

  • If I borrow 4 lacs from a friend with an intent to repay him back . Will I be required to pay tax?

  • Sir, my mother has brought a vacant land in Bangalore in 1995. All most 22 years land.

    Now we have sold the land for Rs. 30,00,000/- to one of the purchaser on 12th Sept 2017.

    My mother age is approx 55 - 60 years.

    Please inform whether we need to pay income tax.

    if my mother divides the amount equally to my sister and their daughters whether we need to pay tax or it will treat as gift.

    Also please inform how to exempt tax.

    We are very poor and trying to sell land for my sister daughters marriage of 2 siblings.

    if we gift the amount for them equally whether it is exempted from income tax. Please help us.

  • Can gift received from mother be considered as "income" and needs to be shown as 'Exempt Income' for reporting purpose? Or there is no need to show it anywhere while filing returns if it is not considered as income?

  • 1. Gift from father to daughter is taxable

    2. divorce settlement amount received is taxable or not if not under which section

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