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Section 56 - Tax on Gifts Received by Individual & HUF

Section 56 - Tax on Gift

Section 56(2) of the Income Tax Act, specifically lays down the rules of taxing gifts received by Individuals and HUF. Let us divide us this rule into three major questions :


Which Types of Gifts are Taxable?


  • Monetary Gift - Any sum of money received without consideration.

  • Gift of Movable Property - Specified movable properties received without consideration

  • Movable Property Inadequate Consideration - Specified movable properties received at a reduced price. These are movable properties like shares/rights, etc.. received below market value

  • Immovable properties - Immovable properties received without consideration.

  • Immovable properties at Inadequate Consideration - Any immovable property which is purchased or received for consideration below stamp duty


Gifts of What Amount are Taxable?


Monetary Gift / Movable Property/Immovable Property - To simply summarise what the law says than following gifts are taxable:

  1. Any money received by Individual / HUF without any consideration by way of Cash / Cheque / Bank Draft / Online Mode, etc.. will be taxable if the sum of such amount is more than Rs 50,000/-.

  2. Any Movable Property like say shares received for no or inadequate consideration where the difference between the fair market value of shares and consideration is more than Rs 50,000 then the complete gift amount is taxable.

  3. Any Immovable Property received for no or inadequate consideration where the difference between the stamp duty value and consideration is more than Rs 50,000 then the complete gift amount is taxable.


Taxing Monetary Gift by Resident to Non-Resident

Section 9(viii) was specifically included in the Finance Act, 2019 to include the monetary gift by a Resident Indian to a Non-Resident will also be deemed to accrue or arise in India and will be taxable in India. This will also indirectly attract Section 195 which states that TDS shall be deducted for any taxable income payment made by the Resident to a Non-Resident.


Aggregate Value of All Gifts Received During Year More than Rs. 50,000

The sum of money received without consideration by an individual or HUF is chargeable to tax if the aggregate value of such sum received during the year exceeds Rs. 50,000.


Vital is the “aggregate value of such sum received during the year”. The taxability of the gift is based on the aggregate value of the gift received during the year and not based on individual gifts. Hence, if the aggregate value of gifts received during the year exceeds Rs. 50,000, then the total value of all such gifts received during the year will be charged to tax (i.e. the total amount of gift and not the amount over Rs. 50,000).



Gifts from Whom Are Not Taxable?


Gifts in the following cases will not be taxable and do not form part of total income :


  • from any relative or by a HUF from its members; or

  • on the occasion of the marriage of the individual; or

  • under a will/ by way of inheritance; or

  • in contemplation of the death of the payer or donor as the case may be; or

  • from a local authority as defined under Explanation to clause (20) of section 10​ of the Income-tax Act, 1961; or

  • from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23); [w.e.f. AY 2023-24, this exemption is not available if a sum of money is received by a specified person referred to in section 13(3)]. or

  • by any fund, trust, institution, university, other educational institution, 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  (applicable if the money is received on or after 1st day of April 2017)

  • from or by a trust or institution registered under section 12A, section 12AA or ​ section 12AB [w.e.f. AY 2023-24, this exemption is not available if a sum of money is received by a specified person referred to in section 13(3)]. or​​; or

  • by way of transaction not regarded as transfer under section 47(i)/(iv)/(v)/(vi)/(via)/ (viaa)/(vib)/ (vic)/ (vica)/ (vicb)/ (vid)/ (vii)​

  • from an Individual by a trust created or established solely for the benefit of a relative of the Individual.  (applicable if the money is received on or after 1st day of April 2017)

  • from such class of persons and subject to such conditions as may be prescribed.

  • From any person, in respect of any expenditure incurred by an individual on his medical treatment or treatment of any member of his family, for any illness related to COVID-19 (subject to such conditions as prescribed by Govt.).

  • By a member of the family of a deceased person, if the cause of death is illness related to COVID-19,

    • From the employer of the deceased person; or

    • From any other person or persons to the extent that such sum doesn’t exceed Rs. 10 lakh.


Here relative in case of individual means :

a.Spouse of the individual;

b.Brother or sister of the individual;

c.Brother or sister of the spouse of the individual;

d.Brother or sister of either of the parents of the individual;

e.Any lineal ascendant or descendent of the individual;

f.Any lineal ascendant or descendent of the spouse of the individual;

g.Spouse of the persons referred to in (b) to (f).


Lineal ascendant or descendent will mean Grand Parents and Great Grand Parents of the Individual or his/her spouse.


Let's Discuss Some Unique Practical Scenarios to Check Taxability


Monetary Gifts Received from Abroad

Yes taxable whether received from India or Abroad.

Gift of Immovable Property Situation Outside India

Gift Received by Uncle From Nephew

Whether Gift Received by Father in Case of Daughter Marriage is Taxable

Gift of Car or Rural Agriculture Land


 

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