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Lakesh KumarLakesh Kumar
Gift is usually used to convert black money into white money. To stop practice of converting black money into white money a section 56(2)(Vii) introduced by Finance Act , 2009 and amended by Finance act , 2010. This section deals with law of taxation of gift.

Provision Contained in Sec-56(2)(Vii)-

Where an individual or HUF receives in any previous year, from any person or persons-

(a)  any  sum of money, without  consideration , the aggregate value of which exceeds Rs. 50,000/-, the whole of the aggregate value is taxable,

(b)  any immovable property,-

I.        without consideration, the stamp duty value of which exceeds Rs. 50,000/-, the stamp duty value of such property is taxable,

II.        received for a consideration which is less than the stamp duty value of the property and difference is more than Rs.50,000/- then such difference is taxable

(c)  any property other than immovable property,-

I.        without consideration , the aggregate fair market value of which exceeds Rs. 50,000/-, the whole of the aggregate fair market value is taxable,

II.        received for a consideration which is less than the aggregate fair market value of the property and difference is more than Rs.50,000/- then such difference is taxable

Analysis of Section- 56(2)(Vii) Read with section of Capital Gain Section 50C, Sec-47.     

I.        Any transfer of capital assets under gift, will or an irrevocable trust is not taxable under head Capital Gain. It is not regarded as transfer U/s 47.

II.        Any distribution of capital assets on the partial or total partition of a Hindu Undivided Family is not taxable under head Capital Gain. Because it is not regarded as transfer U/s 47.

III.        As per Sec-50C, where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of State Government for the purpose of payment of stamp duty, such value deemed as full consideration.

Graphical representation of above provisions ( like a capsul to understand above provisions

GIFT GraphExample of above discussed provisions :-

1. Lucky has a property, which he has purchased on 01-04-2004 of Rs. 10,00,000/-. Later on he gifted the property to Bharti (Donee) on 31-03-2015. On date of gift Stamp duty/Fair market value of said property was Rs. 25,00,000/-.What is tax implication in the hands of Lucky (Donor) and Bharti (Donee).?

Solution-

In the hands of Lucky (Donor)

There is no capital gain tax in the hands of lucky because gift transfer is exempted U/s 47 of the income tax act and other reason is that there is no sale price exist.

In the hands of Bharti (Donee)

Gift is taxable in the hands of Bharti under the head “Income from other sources” under section 56(2)(Vii). Because stamp duty value/ Fair market value of the property is in excess of Rs. 50,000/-. Hence whole stamp duty value/ Fair market value is taxable in the hand of Bharti.i.e 25,00,000/- is taxable.

2. In above example if Lucky sold property to Bharti at Rs. 20,00,000/-. Other things remains same then what tax implication in the hands of Lucky and Bharti.?

Solution-

In the hands of Lucky

If property sold is an immovable property then Section 50C would be applicable, hence Capital Gain = 25 lakh-10 lakh= 15 lakh is taxable.( Subject to indexation)

If property is other than immovable property then section 50C does not apply, hence Capital gain = 20 lakh- 10 lakh .i.e 10 lakh is taxable.

In the hands of Bharti-

Stamp Duty value or fair market value of the property is excess of Rs. 50,000/-. Consideration paid is less than stamp duty value/ fair market value and difference between stamp duty value/ fair market value is in excess of Rs. 50,000/-. Hence it is taxable in the hands of Bharti.

Taxable amount = 25 lakh – 20 lakh = 5 lakh is taxable under the head “Income from other Sources”

Exemptions in relation to Gift

Provided further that Sec-56(2)(Vii) does not apply to any sum of money or any property received-

I.        From any relatives, or

II.        On the occasion of the marriage of the individual, or

III.        Under a will or by way of inheritance, or

IV.        From any local authority as defined in the explanation of Sec-10(20), or

V.        From any fund or foundation or university or other educational institutions ,or hospital or other medical institutions or any trust referred in Sec-10(23C) ,or

VI.        From any trust or institutions registered under section 12AA of income tax act.

I have used the word “Property” many times. Property means the followings capital assets of the assessee, namely:-

i.        Immovable property being land or building or both,

ii.        Shares and securities

iii.        Jewellery

iv.        Archaeological collection,

v.        Drawings,

vi.        Paintings,

vii.        Sculptures,

viii.        Any work of art,

ix.        Bullion.

Meaning of Relative(Specified persons):-

i.        Spouse of individuals,

ii.        Brother or sister of 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 above clauses.

Section 56(2)(Viia) :- Gift received by firm or closely held company:-

Where a firm or closely held company received from any person or persons shares of a closely held company –

a) Without consideration, the aggregate fair market value of which exceeds Rs. 50,000/-, the whole of the FMV of such shares.

b) For a consideration which is less than FMV of shares and difference between consideration or FMV exceeds Rs. 50,000/- , then such excess shall be taxable.

Points need to be remember :-

1)    Gift received from relative is exempt.

2)    Gift received on the occasion other than marriage from non specified person shall be taxable under the head income from other sources.

3)    Money received whether in cash or cheque in excess of Rs. 50,000/- from non specified persons shall be taxable.

4)    Gift received in contemplation of death is not taxable.

5)    There is no tax implication if HUF receives gift from any member of the HUF or purchase assets at lower price than stamp duty value/ Fair market value.

6)    As per Hindu law HUF can not make gift to any one . Such gift is void ab initio.

( Author is a CA Student and can be reached at E-Mail-: lakeshkr@gmail.com)Click Here to Read Other Articles of Lakesh Kumar

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19 responses to “Taxability of Gift U/s 56(2)(Vii)”

  1. khalique yezdani says:

    Hi,
    I am a real estate consultant & got stuck in a deal.The property is a flat in Pune,The ready reckoner rate is 90 lakhs. The agreement value is 83 lakhs & stamp duty will be paid by the seller.So basically the ready reckoner rate is more than agreement value by 7 lacs. Please help me with following query:
    1-What will be tax liability for the buyer if we do register at 83 lakhs.Here seller is ready to pay stamp duty on ready reckoner.

  2. Sanjay says:

    Hi, my father in law wants to gift a cheque of Rs 12 lakhs to my wife ( his daughter who is now married to me) falls under taxable income of my wife or not.

  3. Saket Kumar Sahu says:

    I am a salaried person. I along with my two friends (both salaried) purchased a Car and given the same to Car rental company. Company will give us profit share of the car every month on my account.

    Will the received amount is taxable ?? Also can I share the TAX along with my two friends as all three has invested in the car.

  4. m d mehta says:

    my querry is, whether gift received by discretionary family trust from the relatives of beneficiary is taxable u/s 56(2)

  5. VINOD KUMAR GUPTA says:

    Dear Lakesh,
    congratulation of writing such a nice such a informative and educative article.

  6. rajendra goyal says:

    pl reply my quiry:-
    my wife received RS.375000.as basic compansation amount by UOI in MARCH 2017 as LR of her father land acquired by UOI.
    another amount of RS.1500000.00 as interest amount on above compansation amount.
    TOTAL amount Rs. 1875000.00
    TDS deducted Rs. 150000.00 on interest amount.My wife is housewife and has no any income.She invested Rs.150000.00 in PPF account.
    I request you please know me about the Income tax liability as well as refund amount.
    I will be very thankful to you for the informations.

  7. Dr g cvadera says:

    Kindly give your advice regarding gift given by father to his son in their HUF
    ..suppose father X wants to g
    I’ve give some amount from his individual capital to his sons HUF can father give.

  8. SATISH KAVERIPATNAM says:

    Our lands were acquired by the Mujrai dept of Govt of Karnataka, apart from aquisition proceeds, received Interest on the aquisition amount. What will be the issue regarding the interest part of the proceeds ??

    • Jitender Sharma says:

      Interest received for Compulsory acquision is will be taxable under income from Other Sources. However deduction of 50% of interest will be allowed. Hence 50% of interest will be taxable as income form other sources.

  9. Raja says:

    Hello,
    I live with my mother, unmarried sister along with my wife and a child in a flat that is 20 years old. The flat is in my mother’s name. She will give me my share of 25 lakhs Rupees after it is sold via cheque/dd. As per your answers above, I understand that it would not attract any tax to me. My queries are:

    1. Is that amount which I will receive will be non taxable to me ONLY AFTER she pays her own taxes first? Because, she plans to buy another flat sooner or later in the future.
    2. Would she have to pay capital gains if she buys the property within 2 years?
    3. Is it necessary to notarize the gift deed for legal and tax purpose?
    4. I am an individual and not a HUF. Will I still be eligible for tax exempt?

    Thank you very much in advance. Your help will be appreciated.

    • Jitender Sharma says:

      1. amount you will receive as per you share will be non taxable whether she pays tax or not.For the purpose of income tax purpose you and your mother are different assessees.
      2 if she plans to buy house later she needs to deposit the sale proceeds to capital gains depsosit account with the bank to claim exemption form capital gain.
      3.In case you mother gives you money through cheque from her account then no need for gift deed. but it is always good if you make gift deed and notarize it.
      Yes you will be eligible for exemption

  10. CHETAN RAJYAGURU says:

    1. Gift Of a Motorcar Worth Rs. 25 Lack Recd From non Specified Person On the Occasian Of My Marriage. Exempted U/s 56 (2) ?

    2. On Birth Date ?

    Reply Will Be Appericiate

  11. dattatreyahg says:

    It will be of great value if a list of RELATIVES who are considered as Lineal ascendants / descendants is also published here

  12. ca s visweswara rao says:

    without buttons we can not wear shirts and pants here is like that without case laws we cannot establish strong opinions before tax authorities please provide as far as possible.

  13. Gaurav says:

    Sir,
    Provided further that Sec-56(2)(Vii) does not apply to any sum of money or any property received-

    I. From any relatives
    In the meaning of Relatives clause iv- Brother or sister of either of the parents of the individual, does that mean if an individual receives a gift in the form of cash from his father’s sister, than it will be exempt from tax?

  14. Sangeeta says:

    Very Good Article Lakesh. Its very Helpful. Thanx for writing such articles. Please keep on writing articles. One day you will definitely shine bright. All the best for the future.

  15. vsnmurty says:

    HI,
    I appreciate the clarity inyour expressions.
    As regards gift by HUF to the Members, there are some Judicial Decissions holding that HUF is nothing but a group of relatives and a gift by HUF is a gift by a relative.
    Bless you and welcome to Profession soon

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