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Introduction:

The title of the article  emphasis on the applicability of Income Tax, on the gifts, whether movable or immovable received by an individual from any person on different occasions.

Description:

The Income Tax Act, 1961 bifurcates gifts received by an individual in the broad categories namely Gift of money (whatever the mode, cash or cheque) as movable property and Gift of Immovable Property.

Further, an individual can receive the above mention gifts from anybody like from any of his/her relatives, friends or any person at any time or on any occasion. The question is about the taxability of the gift, whether it is taxable or exempt?

The Income Tax Act, however clarified about the taxability of Gift and non taxability i.e. exempt from tax.

As per Section 56(2)(v), where any sum of money exceeding Rs. 50,000 is received without consideration by an individual or a HUF from any person on or after the 1st Day of April, 2006, the whole of such sum:

Provided that this clause shall not apply to any sum of money received-

(a) from any relative; or

(b) on the occasion of the marriage of the individual; or

(c) under a WILL or by way of inheritance; or

(d) in contemplation of death of the payer; or

(e) from any local authority as defined in the Explanation to section 10(20); or

(f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to Section 10(23C); or

(g) from any trust or institution registered u/s 12AA now 12AB.

For purpose of this clause “relative” means

(i) spouse of the individual;

(ii) brother or sister of individual;

(iii) brother or sister of 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 clause (ii) to (vi)

The term Property has also been defined in the tax laws:

  • Immovable property being land or building or both;
  • Shares and securities;
  • Jewellary;
  • Archaeological collections;
  • Drawings, paintings, sculpture;
  • Any art work or bullion

Taxability of Gift Received by An Individual

As per Section 56(2)(vi)

Where any sum of money, the aggregate value of which exceed fifty thousand rupees, is received without consideration, by an individual, in any previous year from any person or persons on or after the 1st day of April,2006( but before the 1st day of October,2009), the whole of the aggregate value of such sum:

Provided that this clause shall not apply to any sum of money received as mention in clause v, as above.

Further, when an individual receives movable property as gift, without consideration, it will be taxable only and only if the aggregate fair market value exceeds Rs. 50,000 during the financial year.

If any movable property is received for an inadequate consideration, then it will be taxable in the hands of recipient, if the consideration is less than the aggregate fair market value by Rs. 50,000.

To understand the above, it will be easy to go through certain examples.

Example No 01.

Mr. Atul received Rs. 10,000, Rs.20,000 and Rs.18,000 from his friends as gift during financial year 2020-21. Whether any amount of gift received is considered as income of Mr. Atul?

As per section 56(2)(vi) if aggregate amount of gift received during financial year, exceed Rs. 50,000 the whole amount is to be considered as income of recipient. In the given example total amount of gift received is Rs. 48,000 which is less than Rs. 50,000  hence exempt.

Example No 2.

Mr. Shailesh received the following gifts from his relatives and friends on occasion of his marriage.

  • Cash gift of Rs. 1,20,000 from his friends and relatives
  • Gift of Car from his spouse’s friends and relatives
  • Gift of Jewellary received from his cousin brother
  • House from his father

How much amount is to be considered as income of Mr. Shailesh?

In this case whatever the gifts received i.e. cash, car, Jewellary and house are on the occasion of marriage and as per section 56(2)(vi) any gift received on the occasion of marriage are exempt.

 In this case list of the friends and spouse’s  friends are to be kept ready with names and amount. Name and address and PAN no of cousin brother who has given Jewellary, is also required. Same way father’s PAN is required.

Example No 3. 

Mr. Mukesh received the following gifts on the occasion of his marriage anniversary.

  • Cash of Rs. 1,00,000 from his friends and relatives
  • Gold ring from his wife’s mother
  • Car from his cousin brother.
  • Shares of Reliance Industries from his father.
  • Cash received from his Uncle( Mama) Rs. 1,00,000

The difference between example no 2 and 3 is in example no 2, occasion is marriage while in example no 3, marriage anniversary. On the occasion of marriage gift received is exempt while on the occasion of marriage anniversary it is taxable.

  • Cash received from friends and relatives is more than Rs. 50,000 hence entire Rs.1,00,000 will be considered as income of Mukesh.
  • Gold ring from wife’s mother will be exempt as she will fall under the definition of exempted gift.
  • Car from cousin brother will be taxable, because it does not fall under list of exempted gift.
  • Shares of Reliance Industries are exempt, as it is received from father.
  • Gift received from Uncle(Mama) is exempt, as uncle will cover under the definition of “relative”.

Example No 4.

Vidhi, cleared her 12th Examination on top in her region. There for the School felicitate her and gave cash award of Rs. 25,000. Local Municipal Corporation also felicitate her with cash award of Rs. 50,000. Also one person from her locality gave her Rs.10,000 for appreciation.

 As per section 56(2)(v) gift from any local authority as defined in the Explanation  to section       10(20) or 10(23) from any university, education institute gift given by them are exempt. Hence award received from school and Municipal corporation are exempt. Gift received from local person is taxable but as the amount is less than Rs. 50,000 that is also exempt.

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