Taxability Of Gifts Received By Individual Or HUF Member U/S 56(2)

People from all over the world love to present gifts to their loved ones on different occasions. In this practice, it is seen in several cases that valuable assets/large sums of money are transferred and thus, from FY 2004-05 onwards, Government has considered to add tax on gifts to be applicable as receiver’s income under the head ‘Income from Other Sources’. Gifts, of type movable/immovable assets as received by an individual/a member of HUFs without/with consideration more than a threshold value would be treated as taxable under the clause (x) of Section 56(2) of Income Tax Act that is introduced in Finance Act 2017.

Note: A ‘Gift’ as defined u/s 122 of the Transfer of Property Act, 1882, is the transfer of any movable/immovable property which has been made by one person voluntarily and without any consideration to another person. ‘Donor’ is one who presents a gift and ‘Donee’ is the person who is receiving a gift.

Types of Gifts Eligible of Taxation u/s 56(2)x Income Tax act

Receipt provided for a sum of money or immovable property that is more than INR 50 thousand is taxable in the hands of the receiver. The Gifts include:

Gift in Cash

• Money received without consideration with aggregate value more than INR 50 thousand. This whole amount is taxable.

Immovable Property

• Immovable property without consideration, when its Stamp Duty Value is more than INR 50 thousand. Whole Stamp Duty amount is taxable.
• Immovable property with consideration, when its Stamp Duty more than the highest amount of the following:
  • INR 50 thousand
  • 5% of the consideration

Difference of Stamp Duty and Consideration Value is taxable

Movable Property

• Aggregate Fair Market Value (FMV) of movable property (defined and specified) if it is more than INR 50 thousand. This whole amount is taxable.
• Movable property (defined and specified) with consideration, lower than FMV but more than INR 50 thousand. Difference of Property Value and Consideration Value is taxable.

Tax-Free Gifts as Defined u/s 56(2)x (Fully Exempt under Income Tax)

Certain gifts are considered Tax-Free u/s 56(2)x, if they satisfy any of these conditions:

• Gifts given by relatives is exempt.

• Any gift of the type movable/immovable asset that is received from specific relatives is tax free.

For individuals, gifts from these relatives are tax-free:

• Spouse

• Brother/Sister
• Any inherent ascendant or descendant
• Brother/Sister of either of the parents
• Brother/Sister of the spouse
• Any inherent ascendant or descendant of the spouse

For HUFs, gifts from these relatives are tax-free:

• Any member

• Gifts received in these circumstances/from the source as mentioned:
  • Marriage
  • Provision in a will/Inheritance
  • Protocol followed after the death of a donor
  • Local authority as defined in clause 20 of Section 10
  • Any fund/Foundation/Other educational institution/University/ Hospital/Other medical institution/Any trust or institution as defined u/s 10
  • Any trust/ institution registered under section 12A or section 12AA
  • Any transaction from trust/institution that is not regarded as transfer u/s Section 47
  • Any individual by a trust that serves for the benefit of any relative of an individual
  • Compensation (other than payment), received to the employee in relation to the termination of employment/modification of employment terms and conditions applicable in such circumstances

Any gifts received from a person, who is not a relative are taxable if they satisfy the tax eligibility as mentioned in Section 56(2)x.

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