Poornima Madhava
As per section 56(2)(x) of Income Tax Act, gifts received by an individual or a hindu undivided family in the form of money or property (without consideration or with inadequate consideration) is taxable as income under the head Income from Other Sources provided such income falls under five categories mentioned below and such income does not fall in the exempted category.
Page Contents
- Which are the categories under which gifts received are taxable?
- What is property?
- What is stamp duty value?
- What is exempted category?
- Who is relative?
- Who are lineal ascendants or descendants?
- Is income taxable where the recipient and/or donor is a non-resident?
- Are gifts received from members or relatives of members of HUF taxable?
- How are properties valued?
- Illustration:
Which are the categories under which gifts received are taxable?
| Category | Criterion for taxability | Taxable income | For ceiling limit of Rs.50,000 whether a single or all transactions of PY will be considered |
| 1. Any sum of money (Gift in cash/cheque/ draft other than loan) | Aggregate amount received from one or more persons during the previous year (PY) exceeds Rs.50,000 | Whole of such aggregate amount | All transactions |
| 2. Immovable property without consideration | Stamp duty value of the property exceeds Rs.50,000 | Stamp duty value | Single transaction |
| 3. Immovable property for a consideration which is less than stamp duty value | Property is received for a consideration which is less than stamp duty value by an amount exceeding Rs.50,000 | Difference between the stamp duty value and the consideration is more than the higher of the following amounts:
(i) the amount of fifty thousand rupees; and (ii) the amount equal to five per cent of the consideration Then excess differential amount will be taxable |
Single transaction |
| 4. Movable property without consideration | Aggregate fair market value (FMV) of properties received exceed Rs.50,000 | Whole of such aggregate FMV | All transactions |
| 5. Movable property for a consideration less than FMV | Property is received for a consideration which is less than aggregate FMV by an amount exceeding Rs.50,000 | Difference between aggregate FMV and the consideration | All transactions |
What is property?
Property means the following capital assets of the recipient:
1) Immovable property being land or building or both
2) Shares and securities
3) Jewellery
4) Archaeological collection
5) Drawings
6) Paintings
7) Sculptures
8) Any work of art
9) Bullion
Serial No.2 to 9 are movable properties.
What is stamp duty value?
It means the value adopted or assessed or assessable by any authority of the Central/State Government for the purpose of payment of stamp duty in respect of an immovable property.
What is exempted category?
While computing the aggregate limit of Rs.50,000 in any of the five categories above, the following shall not be considered:
1) Money/property received from a relative
2) Money/property received on the occasion of the marriage of the individual
3) Money/property received by way of will/inheritance
4) Money/property in contemplation of death of the payer
5) Money/property received from a local authority
6) Money/property received from any fund/foundation/university/other educational institution/hospital/ medical institution/any trust/institution referred u/s 10(23C)
7) Money/property received from charitable institute registered u/s 12AA
8) Money/property received 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
9) Money/property received from an individual by a trust created or established solely for the benefit of relative of the individual.
10) Money/property received 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
Who is relative?
The word relative includes the following:
| Relative | In case the taxpayer is X |
| 1) Spouse of the individual | Mrs. X |
| 2) Brother or Sister of the individual | Brothers or Sisters of X |
| 3) Brother or Sister of the spouse of the individual | Brothers or Sisters of Mrs. X |
| 4) Brother or sister of either of the parents of the individual | Brothers or Sisters of father or mother of X |
| 5) Any lineal ascendant or descendant of the individual | Lineal ascendant/descendant of X |
| 6) Any lineal ascendant or descendant of the spouse of the individual | Lineal ascendant/descendant of Mrs. X |
| 7) Spouse of the person referred to in (2) to (6) | Spouse of the aforesaid persons |
Who are lineal ascendants or descendants?
Lineal Ascendant means individual’s father/mother, grandfather/grandmother, great-grandfather/great-grandmother and so on. Lineal Descendant means individual’s son/daughter, grandson/granddaughter, great- grandson/great-granddaughter and so on.
Is income taxable where the recipient and/or donor is a non-resident?
Yes, the provisions of section 56(2)(x) shall be applicable irrespective of the fact whether the recipient and/or the donor is resident or non-resident.
Are gifts received from members or relatives of members of HUF taxable?
Gifts received from members of HUF are not taxable. But gifts received from relatives of members of HUF are taxable.
How are properties valued?
Rules of valuation of various properties are given below:
| Property | Valuation |
| Immovable property | Stamp duty value of the property.Where date of agreement and registration are not same, the stamp duty value may be taken as on the date of agreement for transfer and not as on the date of registration for such transfer.This exemption is applicable where consideration in part/full, is received by any mode other than cash on/before the date of agreement. |
| Jewellery/archaeological collections/ drawings/ paintings/sculptures/any work of art | If purchased from a registered dealer (under sales tax), invoice value is the FMV.In any other case, value such property would fetch if sold in the open market on the valuation date (in this case, report of registered valuer to be obtained by the assessee). |
| Quoted shares & securities (received by way of a transaction carried out through a recognized stock exchange in India) | Transaction value as recorded in such stock exchange |
| Quoted shares & securities (not received by way of a transaction carried out through a recognized stock exchange in India) | The lowest price quoted on any recognized stock exchange in India on the valuation date.If no trading in any recognised stock exchange on such date, lowest price of such shares/securities on a date immediately preceding the valuation date (when traded) shall be the FMV. |
| Unquoted equity shares | There are two options: |
| Option 1 | Value of one share = net worth x paid up value of one share / total amount of paid up equity as in balance sheet (explained below in detail) |
| Option 2[Applicable only in case of sec 56(2)(viib)] | FMV shall be determined (at the option of the assessee) by a merchant banker or an accountant as per Discounted Free Cash Flow Method |
| Other unquoted shares & securities | FMV would be the price it would fetch if sold in the open market on the valuation date. Assessee to obtain a report from Category-I merchant banker (registered with SEBI) or a CA in respect of such valuation. |
Further details on Valuation using option 1 (as mentioned above)
i) Value of one share = net worth x paid up value of one share / total amount of paid up equity as in balance sheet
ii) Net worth = assets – liabilities
iii) Assets =
Book value of assets
Less: (1) Any amount of tax paid as deduction or collection at source or as advance tax payment less refund
(2) Unamortized expenditure which does not represent the value of any asset
iv) Liabilities =
Book value of liabilities but not including:
1) Paid up capital (equity)
2) Amount set apart for payment of dividend (preference/equity) when such dividend is declared before the date of transfer at general meeting
3) Reserves & surplus (even if negative) other than depreciation reserve
4) Provision for taxation (other than TDS/TCS/advance tax less refund) to the extent of excess over the tax payable with reference to book profits
5) Provision for liabilities other than ascertained liabilities
6) Amount representing contingent liabilities (other than arrears of dividend payable in respect of cumulative preference shares)
Illustration:
X receives the following gifts during the PY 2020-21:
| S/N | Date | Value (Rs.) | Nature of gift | Remarks |
| 1 | 02/04/2020 | 2,90,000 | Gift on occasion of marriage of X | Rs.2,00,000 is received from friends of X & Mrs. X and the remaining Rs.90,000 from close relatives of X & Mrs. X |
| 2 | 22/06/2020 | 23,000 | Gift from C, who is cousin of father | |
| 3 | 18/08/2020 | 15,000 | Gift from D, who is brother of grandfather | |
| 4 | 20/09/2020 | 7,00,000 | Gift from grandmother | |
| 5 | 20/10/2020 | 65,000 | Gift from employer | It was purchased by employer on 01/05/2020 |
| 6 | 02/11/2020 | 9,35,000 | Purchase of house property from friend D | Stamp duty value is Rs.10,00,000 |
| 7 | 30/11/2020 | 15,00,000 | Gift of plot of land from grandfather | Value mentioned is the stamp duty value |
| 8 | 30/12/2020 | 25,00,000 | Gift of commercial flat | F is elder brother of X’s father-in-law & value mentioned is stamp duty value |
| 9 | 06/01/2021 | 2,00,000 | Gift from a notified public charitable institution | Cash gift of Rs.25,000 and gift of a work of art whose FMV is Rs.1,75,000 |
| 10 | 11/01/2021 | 15,40,000 | Receives house property under will of a person known to him | Value mentioned is stamp duty value |
| 11 | 20/01/2021 | 40,000 | Gift of wrist watch from friend B | Value mentioned is the FMV |
| 12 | 25/01/2021 | 16,00,000 | Purchases a work of art from an exhibition in New York | FMV on the date of purchase is Rs.17,00,000 |
| 13 | 01/02/2021 | 8,00,000 | Purchases a commercial property | Stamp duty value is Rs.8,50,000 |
| 14 | 05/02/2021 | 11,000 | Gift of a gold chain on birthday from friend | Value given is FMV |
| 15 | 10/02/2021 | 19,00,000 | Gift of plot of land from a partnership firm | Firm partners are father of X and Mrs. X and value given is stamp duty value |
| 16 | 16/02/2021 | 45,000 | Purchase of 500 shares in Tata Chemicals from friend D at Rs.90 per share (outside stock exchange) | The lowest market quotation in BSE & NSE on the date of purchase is Rs.300 & Rs.310 respectively |
| 17 | 01/03/2021 | 20,000 | Gift of gold ring from a cousin of mother-in-law | Value given is FMV |
| 18 | 20/03/2021 | 19,000 | Gift of a painting from C Ltd | Mrs. X holds 70% shares in C Ltd and the value given is FMV |
| 19 | 25/03/2021 | 44,000 | Gift of plot of land from a cousin of Mrs. X | Value given is stamp duty value |
| 20 | 31/03/2021 | 50,000 | Gift of shop in Jammu from a friend | Value given is stamp duty value |
Compute the amount chargeable to tax in the hands of X under the head income from other sources for the AY 2021-22.
Solution:
| Particulars | Cash gift | Gift of immovable property | Gift of movable property | Purchase of movable property for inadequate consideration | Purchase of immovable property for inadequate consideration |
| 1) Gift on occasion of marriage | Nil | – | – | – | – |
| 2) Gift from C (not a relative) | 23,000 | – | – | – | – |
| 3) Gift from D (not a relative) | 15,000 | – | – | – | – |
| 4) Gift from grandmother | Nil | – | – | – | – |
| 5) Gift from employer (taxable under salaries) | – | – | – | – | – |
| 6) Purchase of house property for inadequate consideration (difference b/w stamp duty value and consideration as it exceeds Rs.50,000) | – | – | – | – | 9,35,000 |
| 7) Gift of plot of land from grandfather | – | Nil | – | – | – |
| 8) Gift of commercial flat (not a relative) | – | 25,00,000 | – | – | – |
| 9) Gift from a notified public charitable institution | Nil | – | Nil | – | – |
| 10) Receives house property under will of a person known to him | – | Nil | – | – | – |
| 11) Gift of wrist watch (not a property) | – | – | – | – | – |
| 12) Purchases a work of art from an exhibition in New York (difference b/w FMV and consideration as it exceeds Rs.50,000) | – | – | – | 1,00,000 | – |
| 13) Purchases a commercial property (difference b/w stamp duty value and consideration does not exceed Rs.50,000) | – | – | – | – | Nil |
| 14) Gift of a gold chain on birthday from friend | – | – | 11,000 | – | – |
| 15) Gift of plot of land from a partnership firm (not a relative) | – | 19,00,000 | – | – | – |
| 16) Purchase of 500 shares [(Rs.300 – Rs.90) x 500] | – | – | – | 1,05,000 | – |
| 17) Gift of gold ring from a cousin of mother-in-law (not a relative) | – | – | 20,000 | – | – |
| 18) Gift of a painting from C Ltd (not a relative) | – | – | 19,000 | – | – |
| 19) Gift of plot of land from a cousin of Mrs. X (stamp duty value does not exceed Rs.50,000) | – | Nil | – | – | – |
| 20) Gift of shop in Jammu from a friend (stamp duty value does not exceed Rs.50,000) | – | Nil | – | – | – |
| Total | 38,000 | 44,00,000 | 50,000 | 2,05,000 | 9,35,000 |
Amount taxable u/s 56(2)(x) under income from other sources is calculated as follows:
| Particulars | Rs. |
| 1) Cash gift (not taxable as aggregate amount does not exceed Rs.50,000) | – |
| 2) Gift of immovable properties | 44,00,000 |
| 3) Purchase of immovable property for inadequate consideration | 9,35,000 |
| 4) Gift of movable properties (not taxable as aggregate amount does not exceed Rs.50,000) | – |
| 5) Purchase of movable properties for inadequate consideration | 2,05,000 |
| Amount taxable u/s 56 | 55,40,000 |
Click here to Read Other Articles of Poornima Madhava
(Republished with Amendments by Team Taxguru)
In 6th case can anybody pls explain as to why the entire amount of Rs.9,35,000/- is taxable, as it is not a gift, it is a purchase consideration or the price paid, & not given as gift.
What I understood it to be as 65000 taxable that is the difference amount from SDV value for being more than 50000.
Pls advice
In Point No 14 & 17 where Gold jewellery received from non relative is taxable eventhough their value each is less than 50000, can you pls elaborate.
I concluded to be exempt for value being less than 50000.
somebody pls explain.
We are two brothers. While distributing our father’s land my younger brother received a good quality of lands, whereas I got poor quality of land. On account of this, he agreed & given me an amount of Rs. 9 Lacs by cheque.
Now tell me this is taxable or not ?
I RECEIVED CASH GIFT FROM MY MOTHER AMOUNT RUPEES 200000/- . IT IS NOT TAXABLE ON MY HAND . I WANT TO KNOW THAT IS IT TAXBABLE ON MY MOTHER HAND.
ma’am i want to know taxability of gifts given BY HUF TO its MEMBERS……whether the amount of gift has to be within the limits described under Section 56(2)…are the conditions given under section 56(2) and section 10(2) has to be fulfilled TOGETHER?
whether the amount of gift can exceed 50000 in aggregate or not?
l inform if any Gift in Cash/ Cheque by coparcener ( wife of karta) , ( daughter of Karta ) ( Son of Karta ) to HUF will attract income tax liability when such cumulative gifts exceeed INR 50000 in any year Income from such gift is taxable to donor ?
Can my grandmother give gift to my HUF by will(wasiyat)? Please reply.
on the occasion of marriage what is the limit of gift received in cash from well wishers who attend the marriage.
can a brother give gift in cash to another brother through funds generated on closure of his proprietorship firm . if Yes, then there is any limit for giving gift in amount term. whether there is any tax implication on donor or donee in case of such gift????
if huf is having a gold and sold during the year f y 2014-15 huf ceated on 1/4/2000 what is the implications of the same let me know if posb
Dear Madam,
An individual who is filing his income tax return whether can he receive gift from his wife in cheque.
Abhishek Roy Choudhury.
Very lucidly explained article with lot of clarity.
@Pritika: U r right but I would like to add the following wrt 64(2):
Clubbing before partition: income taxable in the hands of the transferor
Clubbing after partition: income from converted property as is received by spouse of the transferor will be included in the hands of the transferor
Thank You mam for such a prompt response. We have made a conclusion about the same i.e
TAX IMPLICATION OF THE GIFT GIVEN BY HUF TO ITS MEMBERS AND GIFT GIVEN BY MEMBERS TO HUF.
1. Gifts given by HUF (Donor) to the member of the HUF(Donee).
Any amount given as gift by HUF to the member of HUF shall be covered u/s 10(2) of the Income Tax Act, 1961 and shall be exempt from income tax.
The amount so given by the HUF shall be paid out of the proceeds of income earned by the HUF (either during the year or accumulated income over the past years).
The provisions of section 64(2) of the Act shall be attracted where the income is earned by the HUF from such an asset/property which was originally transferred by the member to the HUF for inadequate consideration.
Section 10(2) of the Act states any sum received by an individual as a member of an HUF, where such sum has been paid out of the income of the HUF, or, in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the HUF.
2. Gifts given by Members of HUF( Donor) to HUF(Donee).
As per section 56(2)(vii)(e)(ii), Relative in case of an HUF means any member of the HUF.
Therefore any amount of gift given by the member of HUF to the HUF shall be exempt from tax.
Clubbing Provision:
As per the Section 64(2) of the Income Tax Act, 1961 : Where the individual(member) transfer its property to the HUF such that the individual property is converted into HUF property, the income derived from such property is to be clubbed in the hands of the individual and shall not be taxed in the hands of HUF.
Mam, kindly do the favour by stating, is our understanding is correct or not.
@Pritika: Gifts received by HUF from members of HUF are not taxable as already explained in the article.
Gifts received by HUF from relatives of karta is also not taxable (refer my comments to know about case law).
Similarly, gifts given by HUF to its members including Karta is exempt u/s 10(2). sec 10(2): [subject to the provisions of sub-section (2) of section 64,] any sum received by an individual as a member of a Hindu undivided family, where such sum has been paid out of the income of the family, or, in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family]
Thank You so much mam for the valuable article. Its a really useful article. But I Want to ask about the Taxability and the position of the gifts received by the HUF from the members including Karta and also about the Taxability and position of gift given by HUF to its member including Karta. Kindly give the clarification regarding the same.
Thank you so much for the valuable article, Its a really a useful article. But I want to know about the taxability and the position of the gift received by the HUF from Members including Karta and also the position and taxabilty of the Gifts given by the HUF to its members including Karta.Kindly do the favour.
@Makhan: Gifts received by HUF from relative of karta will not be taxable (Harshadbhai Dahyalal Vaidhya (HUF) vs ITO [2013] 33 Taxmann.com 483 (Ahd).
So as maternal grandmother is relative of karta, karta can receive the gift to make it non-taxable. Further, gifts received from members of HUF are only exempted. If such grandmother is a member then it is not taxable.
More details on HUF:
@ABHINAV: Yeah, taxable bcoz person giving gift is either nephew/niece to the receiver I think and such relation is not included in the definition of relative. But gifts received by an individual from mother’s sister is not taxable as she is a relative within the definition.
@Jeris: Gold chain (jewellery) is a property as per definition but wrist watch is not a property and hence not taxable
@Makhan: Gifts from members of HUF to HUF are not taxable as explained in the article.
@Sandeep: My view is, HUF is a separate entity and how can it have relatives (also meaning of relatives is already specified). To strengthen my view, refer caclubindia.com/experts/gift-received-by-huf-771110.asp#.VVYaBUazmT8 (last response) and also see incometaxindia.gov.in/Tutorials/18.%20Tax%20treatment%20of%20gifts.pdf (Cases in which sum of money received without consideration, i.e., monetary gift received by an individual or HUF is not charged to tax – Page 1) which clearly mentions ‘members of HUF’. However, gifts received by HUF from relative of karta will not be taxable (Harshadbhai Dahyalal Vaidhya (HUF) vs ITO [2013] 33 Taxmann.com 483 (Ahd).
@Sudhakar: For the purpose of section 56, relative definition:
Substituted by the Finance Act, 2012, w.r.e.f. 1-10-2009
Yes, it is really use full.
Gift given to sister of the mother of an individual will be taxable in the hands of the receiver or not.
When gift of a gold chain from a friend is taxed, why not a wrist watch?
Pl inform if any new HUF can be created by cash / cheque gifts from maternal grandmother to the karta of HUF to be created. Pl inform if in such case exemption limitation of INR 50000 will apply or entire amount is exempted. It is understood that once HUF is created any additional gifts from any relative of members of HUF will be taxable. My point is about receiving Gift from maternal grandmother for creating HUF ..
Pl inform if any Gift in Cash/ Cheque by coparcener ( wife of karta) , ( daughter of Karta ) ( Son of Karta ) to HUF will attract income tax liability when such cumulative gifts exceeed INR 50000 in any year . Is it not exempt under Gift from members of HUF – ( as per new law from 2005 all female members of HUF are coparceners and entitled for share in HUF . Please clarify
Are gifts received from members or relatives of members of HUF taxable?
if possible give detaile
Thank you, this article is quite elaborate and very useful. However I have a doubt about the definition of the “Relatives” from whom the gifts are exempted from tax. The Gift tax Act refers to Sec.2, clause 41 of the Income tax act,1968 for the definition of the relative. That section mentions only 5 categories as following – Husband, wife, brother or sister, or any lineal ascendent or descendent of that indual. According to this definition father’s brother or sister. wife’s bother etc will not fall under exempted category. can you please share with us if any amendments/notifications to the above rule are issued recentlt? Thanks & Regards,
Really a good & helpful article. Worth reading, understanding & preserving.
very good article.
my compliments