Provisions of clause (x) govern the taxability of deemed income
on account of any sum of money or any other property received by any person.
The clause was inserted vide Finance Act, 2017, with effect from 01.04.2017
in supersession of clause (vii) which was governing taxability of deemed income
in the cases of individual and HUF and clause (viia), which was governing
taxability deemed income with reference to shares received by a company or a
firm. The intention of inserting provisions of clause (x) were to make a
comprehensive provision covering all the assessees who have received property
without consideration or at a consideration less than the fair market value.
Broadly, the scope of the provision is as under:
(i) Apply to all the
categories of assessees.
(ii) Money or property
should be received during the previous year.
(iii) Same should be
received from any person or persons.
(iv) Provisions are
applicable when the person has received:-
(a) sum of money exceeding ₹ 50,000/-
in aggregate;
(b) any immovable property without consideration
or for a consideration less than the stamp duty value,
exceeding ₹ 50,000/-;
(c) any property, other than immovable property
without consideration or for a consideration less than the fair market
value exceeding ₹ 50,000/-.
(v) In case of immovable
property valuation is to be adopted as per the stamp duty value of the property
as notified by the Central Government or the State Government for the payment
of stamp duty, subject however, to the exemption up to ₹ 50,000/- or
5% of such value, whichever is higher. Further, value is to be adopted as on
the date of the agreement in case a part of consideration has been paid before
the date of agreement by way of account payee cheque or by using electronic
clearance system. The assessee is also entitled to dispute the valuation in
terms of provisions of section 50C(2) of the Act.
(vi) Fair market value in
case of any other property has to be determined as per Rules 11U and 11UA
of Income-tax Rules.
(vii) The property for this purpose means assets as defined in
Clause (vii) of section 56(2) i.e., immovable property being land or building
or both; shares and securities; jewellery; archaeological collections;
drawings; paintings; sculptures; any work of art or bullion.
(viii) Any sum of money or any property received from a relative
or in the circumstances as are specified in the Clause are not covered by the
scope of deemed income. Meaning of the term relative has been defined in Clause
(e) of Explanation to Clause (vii) of section 56(2).
Background
Under the provisions of section 56(2)(vii), any sum
of money or any property which is received without consideration or for
inadequate consideration (in excess of the specified limit of Rs. 50,000) by an
individual or Hindu undivided family is chargeable to income-tax in the hands
of the resident under the head “Income from other sources” subject to certain exceptions.
Further, receipt of certain shares by a firm or a company in which the public
are not substantially interested is also chargeable to incometax in case such
receipt is in excess of Rs. 50,000 and is received without consideration or for
inadequate consideration. The definition of property for the purpose of this
section includes immovable property, jewellery, shares, paintings, etc. These
anti-abuse provisions are currently applicable only in case of individual or
HUF and firm or company in certain cases. Therefore, receipt of sum of money or
property without consideration or for inadequate consideration does not attract
these anti-abuse provisions in cases of other assessees.
In order to prevent the practice of receiving the
sum of money or the property without consideration or for inadequate
consideration, the Finance Act, 2017, inserted a clause (x) in sub-section (2)
of section 56 so as to provide that receipt of the sum of money or the property
by any person without consideration or for inadequate consideration in excess
of Rs. 50,000 shall be chargeable to tax in the hands of the recipient under
the head “Income from other sources”.
Text of Section 56(2)(x)
[1][where any
person receives, in any previous year, from any person or persons on or after
the 1st day of April, 2017,—
(a) any sum of
money, without consideration, the aggregate value of which exceeds fifty
thousand rupees, the whole of the aggregate value of such sum;
(b) any immovable property,—
(A) without
consideration, the stamp duty value of which exceeds fifty thousand rupees, the
stamp duty value of such property;
[2][(B) for a
consideration, the stamp duty value of such property as exceeds such
consideration, if the amount of such excess is more than the higher of the
following amounts, namely:—
(i) the amount of fifty thousand rupees;
and
(ii) the amount equal to [3][ten per
cent] of the consideration]:
PROVIDED that
where the date of agreement fixing the amount of consideration for the transfer
of immovable property and the date of registration are not the same, the stamp
duty value on the date of agreement may be taken for the purposes of this
sub-clause :
PROVIDED FURTHER
that the provisions of the first proviso shall apply only in a case where the
amount of consideration referred to therein, or a part thereof, has been paid
by way of an account payee cheque or an account payee bank draft or by use of
electronic clearing system through a bank account [4][or through such other
electronic modes as may be prescribed], on or before the date of agreement for transfer
of such immovable property:
PROVIDED ALSO
that where the stamp duty value of immovable property is disputed by the
assessee on grounds mentioned in subsection (2) of section 50C, the Assessing
Officer may refer the valuation of such property to a Valuation Officer, and
the provisions of section 50C and sub-section (15) of section 155 shall, as far
as may be, apply in relation to the stamp duty value of such property for the
purpose of this sub-clause as they apply for valuation of capital asset under those
sections;
(c) any property, other than immovable
property,—
(A) without consideration, the aggregate
fair market value of which exceeds fifty thousand rupees, the whole of the
aggregate fair market value of such property;
(B) for a
consideration which is less than the aggregate fair market value of the
property by an amount exceeding fifty thousand rupees, the aggregate fair
market value of such property as exceeds such consideration :
PROVIDED that this clause shall not
apply to any sum of money or any property received—
(I) from any relative; or
(II) on the occasion of the marriage of
the individual; or
(III) under a will or by way of
inheritance; or
(IV) in contemplation of death of the
payer or donor, as the case may be; or
(V) from any
local authority as defined in the Explanation to clause (20) of section
10; or(VI) from any fund or foundation or university or other educational institution
or hospital or other medical institution or any trust or institution referred
to in clause (23C) of section 10; or
(VII) from or by any trust or
institution registered under [5][section 12A or section 12AA
or section 12AB]; or
(VIII) by any fund or trust or
institution or any university or other educational institution or any 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
(IX) by way of
transaction not regarded as transfer under clause (i) or [6][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
(X) from an
individual by a trust created or established solely for the benefit of relative
of the individual.
[4][(XI) from such class of
persons and subject to such conditions, as may be prescribed.]
Explanation : For the
purposes of this clause, the expressions “assessable”, “fair market value”,
“jewellery”, “property”, “relative” and “stamp duty value” shall have the same
meanings as respectively assigned to them in the Explanation to clause (vii).]
[7][(XII) any
compensation or other payment, due to or 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.]
KEY NOTE
1. Inserted by Finance Act, 2017, with effect from
01.04.2017.
2. Substituted for existing item (B) of sub-clause
(x) of sub-section (2) of Section 56 by Finance Act, 2018, with effect from
01.04.2019.
3. Substituted for the words “five per cent.” by the
Finance Act, 2020, with effect from 01.04.2021.
4. Inserted by the Finance (No. 2) Act, 2019, w.e.f.
01.04.2020.
5. Substituted for “section 12A or section 12AA” by
the Finance Act, 2020, with effect from 01.06.2020..
6. Inserted by Finance Act, 2018, with effect from
01.04.2018.
7. Inserted, ibid. w.e.f. 01.04.2019.
Analysis of the
proposed clause (x) to section 56(2) – Scope of taxation of gifts as income
from other sources expanded for all taxpayers
The inserted clause (x) to section 56(2) is a
comprehensive provision that incorporates:
(i) the
existing provisions of section 56(2)(vii) (which applied to individuals and
HUFs);
(ii) the
existing provisions of section 56(2)(viia) (which applied to closely held
companies and firms); and
(iii) certain additional features.
KEY
NOTE
The
person who is giving a gift is called the ‘Donor’ and the person receiving the
gift is known as ‘Donee’.
Scope of taxation of gifts as
income from other sources expanded for all taxpayers
Unlike the provisions
of section 56(2)(vii) and section 56(2)(viia), which applied only to specified
categories of persons referred to therein, the inserted clause (x) will apply
to all persons. Thus, all individuals, HUFs, companies (regardless of whether
they are companies in which the public are substantially interested or
individuals and artificial judicial persons will be covered by this provision.
Provisions of section 56(2)(x) applicable
even where the recipient and/or donor is a non-resident
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.
NRIs to be taxed for Gifts received from Resident Indians
Upto 04.07.2019, gifts given as (any sum of
money paid or property transferred) by a resident Indian to a non-resident is
claimed as non-taxable in India as the income does not arise or accrue in
India. But with the proposed amendment in the Union Budget 2019, such gifts
made on or after July 5, 2019 to non-residents will be taxed in India in the
hands of the recipients. The proposal has been made to plug the loophole that
allowed for its tax-free treatment earlier.
Henceforth, all gifts given on or after July 5,
2019 by resident Indians to NRIs will be deemed as income accruing in India and
would attract tax as per the normal income tax slab rate of the resident
Indian. So, for the purpose of taxation, the source or origin of the gift gains
importance instead of the destination to which the gift is given i.e. abroad.
The NRI who happens to receive the gift will need to make the disclosure of
such gifts if their origination is from India and pay a tax on it in that case.
A sum of money
received without consideration, is deemed to accrue or arise in India
Any sum of money paid or any property situated
in India, transferred by a person resident in India to a person outside India
(NRI), as it would be deemed to accrue or arise in India.
The Finance (No.
2) Act, 2019 has inserted clause (viii) to Section 9 which imposed
tax on any sum of money paid or any property situated in India, transferred by
a person resident in India to a person outside India (NRI), as it would
be deemed to accrue or arise in India. Also Finance (No. 2) Act,
2019 have specifically defined the ‘person outside India’ as non-resident or
foreign company.
Text of Section 9(1)(viii)
(viii) income
of the nature referred to in sub-clause (xviia) of clause (24) of
section 2, arising from any sum of money paid, or any property situated in India
transferred, on or after the 5th day of July, 2019 by a person resident in
India to a person outside India.
Why
the changes were made
In India, gifts are
taxed in the hands of the recipient. However, gifts to NRIs were claimed to be
accrued abroad and hence remained outside the tax net. Therefore, changes have
been made to plug this loophole.
Taxability would arise
if any money is received by a non-resident
As per the amendments
made by the Finance (No. 2) Act, 2019, income shall be deemed to accrue or
arise in India if it arises due to payment of money, without adequate
consideration, by a resident person to a non-resident.
CASES UNDER WHICH GIFTS RECEIVED BY
A NON-RESIDENT WILL BE TAXABLE IN HIS HANDS
Gifts received by a non-resident
will be taxed in his hands if following conditions are satisfied: -
(i)
Money is transferred without
consideration,
(ii)
Resident person transfers the
amount to a non-resident,
(iii)
3. Aggregate amount exceeds Rs.
50,000 during a previous year,
(iv)
Amount is not received from a
relative; example; Spouse, lineal descendant, lineal ascendant, siblings etc.
(v)
5. Amount is not received the
occasion of marriage or other specified occasions.
KEY NOTE
Gift received by a non-resident by way of remittance from
India would be chargeable to tax in India.
Clause (x) of
Section 56(2)
v ¢Where
any person receives,
v in any previous year,
v from any person or persons ¢
v on or after the 1st day of April,
2017,—
Meaning of the term
‘Any Person’ or persons
Any person here means, person as
defined under section 2(31) of the Act and includes an individual, HUF,
company, firm, AOP or BOI whether or not incorporated, local authority and
every artificial juridical person. Accordingly, the scope of the section is
quite wide and will cover every case of an assessee where he receives any
property from any other person or persons.
Sub Clause (a) of Section
56(2) (x)
v any sum of money,
v without consideration,
v the aggregate value of which
exceeds Rs. 50,000/-,
v the whole of the aggregate value
of such sum;
Taxation
of money received without consideration [Section 56(2)(x)(a)]
If any sum of money is received by any person
without consideration, the aggregate in whole year if exceeds Rs. 50,000/-.
Then, whole of the aggregate value of money received will be considered as
“Income from Other Sources”.
Meaning
of the term ‘Any sum of money’
It only refers to the receipt in
money form and not in kind. Accordingly, as per Clauses (v) and (vi) inserted
in section 56(2) of the Act receipt of any other property was not covered and
therefore, scope of the section has been enlarged subsequently by inserting
Clause (vii) and now Clause (x) to cover immovable as well as movable property.
The decision of Hon’ble Supreme
Court in the case of H. H. Sri Rama Verma v. CIT, wherein in the context of
section 80G it was held that deduction is allowable only in respect of any sum
paid and not in respect of donation in kind like of shares. – [H. H. Sri Rama Verma v. CIT (1991) 187 ITR
308 (SC)]
It was held in the context of
section 68 that ‘any sum’ means the entries representing receipt of money and
not of shares. – [ITO v. Vital
Communication Ltd. – Date of Judgement : 15.06.2016 (ITAT Delhi)]
Compensation
received on rail or road accident is not money received without consideration
Amount received on rail or road
accident is not money received without consideration, since same has been paid
in compliance to legal obligation by the Railway Authorities or by Insurance
Company. Therefore, same is not chargeable to tax as deemed income under
section 56(2)(x) of the Act.
Money received on
divorce is as a consideration
It was held that Since in case of
divorce the money is received by the wife or children as a consideration for
relinquishing all her past and future claims, amount is not without
consideration and therefore, not chargeable to tax. – [ACIT v. Meenakshi Khanna (2013) 143 ITD 744 (ITAT Delhi)]
Amount or property
received by a Partner on retirement or change in constitution of the firm is
amount received will not be without consideration
Amount or property received at
time of retirement or on reconstitution of the firm on surrendering his or her
right, title and interest, will not be without consideration and therefore,
same will not taxable in terms of section 56(2)(x). – [Sree Narayana Chandrika Trust v. CIT (2003) 261 ITR 279(SC) Smt.
Vasumati Prafullachand Sanghavi v. DCIT (2018) 168 ITD 585 (ITAT Pune)].
Taxation
of immovable property received [Section 56(2)(x)(b)]
Section
56(2)(x)(b) inter alia, provides that:
(a)
A person receives an immovable property from any person.
(b) Stamp duty value is more than consideration.
(c) Difference between consideration and stamp duty
value is more than Rs. 50,000.
Ø
If
these conditions are satisfied, the difference between consideration and stamp
duty value is taxable as income in the hands of recipient under section
56(2)(x) under the head “Income from other sources”.
Here
property term include the following:
v
Land
and building (immovable)
v
Shares
and securities (Securities Include debenture, bonds etc).
v
Jewellery
(Jewellery includes ornaments made of gold, silver, platinum or any other
precious metal whether or not attach any precious or semi-precious stone, and
whether or not worked or sewn into any wearing apparel. Precious or
semi-precious stones also include in the term of jewellery, whether it is set
or not in any furniture, utensil or other article or worked or sewn into any
wearing apparel)
v
Archaeological
collection
v
Drawings
v
Paintings
v
Sculpture
v
Any
work of art
v
Bullion
(Gold and silver in their purest form)
KEY
NOTE
Only single transaction is considered for
calculating threshold limit of Rs. 50,000/ - in the case of immovable property
received as a gift. Whereas in other cases (cash or movable property) all
transactions in financial year are taken into consideration for calculating
threshold limit of Rs. 50,000/-
Provisions in brief
Any
immovable property,—
|
Item |
Consideration |
Value |
|
(A) |
Without
consideration, the stamp duty value of which exceeds Rs. 50,000/- |
the stamp duty
value of such property; |
|
(B) |
(Applicable upto
31.03.2019) For a consideration
which is less than the stamp duty value of the property by an amount
exceeding Rs. 50,000/- |
the stamp duty
value of such property as exceeds such consideration |
|
(C) |
(Applicable w.e.f
31.03.2019) For a
consideration, if the amount of such excess is more than the higher of the
following amounts, namely:— (i) the amount of Rs. 50,000/-; and (ii) the amount
equal to 10% (5 % - upto assessment year 2020-21) of the consideration: |
the stamp duty
value of such property as exceeds such consideration |
First proviso to
Section 56(2)(x)(b)
v
where
the date of agreement fixing the amount of consideration for the transfer of
immovable property; and
v
the
date of registration,
v
are
not the same,
v
the
stamp duty value on the date of agreement,
v
may
be taken for the purposes of this sub- clause :
Second Proviso to
Section 56(2)(x)(b)
v
that
the provisions of the first proviso shall apply only in a case,
v
where
the amount of consideration referred to therein, or a part thereof,
v
has
been paid by way of,
v
an
Account payee bank draft or by use of electronic clearing system through a bank
account or through such other electronic modes as may be prescribed,
v
on
or before the date of agreement for transfer of such immovable property:
Third Proviso to
Section 56(2)(x)(b)
v
that
where the stamp duty value of immovable property
v
is
disputed by the assessee,
v
on
grounds mentioned in 50C(2),
v
the
Assessing Officer may refer,
v
the
valuation of such property,
v
to
a Valuation Officer, and
v
the
provisions of sections 50C and 155(15) shall, as far as may be, apply,
v
in
relation to the stamp duty value of such property for the purpose of this
sub-clause,
v
as
they apply for valuation of capital asset under those sections;
Sub Clause (c) of Section
56(2)(x)
any
property, other than immovable property,-
|
Item |
Consideration |
Value |
|
(A) |
Without consideration,
the aggregate fair market value of which exceeds Rs. 50,000/-, |
The whole of the
aggregate fair market value of such property; |
|
(B) |
For a consideration
which is less than the aggregate fair market value of the property by an
amount exceeding Rs. 50,000/-, |
The aggregate fair
market value of such property as exceeds such consideration : |
|
(C) |
(Applicable w.e.f
31.03.2019) For a
consideration, if the amount of such excess is more than the higher of the
following amounts, namely:— (i) the amount of Rs. 50,000/-; and (ii) the amount
equal to 10% (5 % - upto assessment year 2020-21) of the consideration: |
the stamp duty
value of such property as exceeds such consideration |
MEANING
OF THE TERMS AS MENTIONED IN EXPLANATION TO SECTION 56(2)(x) IN REFERENCE TO
CLAUSE (vii)
(a)
"assessable" shall have the meaning assigned to it in the Explanation
2 to section 50C (2);
(b)
"fair market value" of a property, other than an immovable property,
means the value determined in accordance with the method as may be prescribed;
(c)
"jewellery" shall have the meaning assigned to it in the Explanation
to Section 2(14)(ii);
(d)
"property" means the following capital asset of the assessee,
namely:—
(i)
immovable
property being land or building or both;
(ii)
shares
and securities;
(iii)
jewellery;
(iv)
archaeological
collections;
(v)
drawings;
(vi)
paintings;
(vii)
sculptures;
(viii)
any
work of art; or
(ix)
bullion;
(e)
"relative" means,—
(i) in case of an individual—
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 descendant of the individual;
F. any lineal ascendant or
descendant of the spouse of the individual;
G. spouse of the person referred
to in items (B) to (F); and
(ii) in case of a Hindu undivided
family, any member thereof;
(f)
"stamp duty value" means the value adopted or assessed or assessable
by any authority of the Central Government or a State Government for the
purpose of payment of stamp duty in respect of an immovable property;
Exceptions
to Section 56(2)(x)
Section
56(2)(x) shall not apply to any sum of money or any property received from
following [Fourth Proviso to Section 56(2)(x)]
(1) From any relative
The term ‘relative’ in case of
individual means spouse, brother or sister, any lineal ascendant or descendant,
brother or sister of the spouse, brother or sister of either of the parents,
any lineal ascendant or descendant of the spouse and spouse of any of the
persons referred above. In case of HUF relative means any member of HUF.
"relative"
means,—
(i)
in
case of an individual—
(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
descendant of the individual;
(F) any
lineal ascendant or descendant of the spouse of the individual;
(G) spouse of the person referred
to in items (B) to (F); and
(ii)
in
case of a Hindu undivided family, any member thereof
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.
Gift received from nephew and
niece is taxable
Gifts received from uncle (mama
or chacha) is exempt. Gift received by mama or chacha from nephew or niece is,
however, taxable.
Relative–Gift from brother in law is relative
Dismissing
the appeal of the revenue the Court held that the Tribunal took into
consideration the details of the donor, more particularly, the PAN number,
capital gain statement, bank statements and the other relevant documents. Upon
perusal of the same, the Tribunal concurred with the findings recorded by the
CIT (A) as regards the genuineness of the transaction. The tribunal,
thereafter, looked into the Section 56 of the Act. Court also held
that plain reading of Section 56(2)(vi), more particularly, the explanation
(e) of the provision would indicate that the assessee,would fall within
the definition of the term “relative” as explained under Section 56 of the Act.
(Related Assessment year : 2008-09) – [PCIT v. Arvind N. Nopany (2020) 313 CTR 87 : 185 DTR 369 (Guj.)]
Gift received from mother’s
sister’s son is not a relative and therefore taxable
It
was held that Mother’s sister’s son is not a relative as per section 56(2)(v)
and therefore, gift received from him is taxable under the Act. – [ACIT v. Masanam Veerakumar (2013) 143 ITD
664 (ITAT Chennai)]
Gift received by
HUF from any member of HUF
It was held that Money / property
received by HUF from member of HUF is not chargeable to tax whereas gift
received from mother of the karta who is not the member of HUF is chargeable to
tax. – [Subodh Gupta (HUF) v. Pr. CIT (2018) 169 ITD 60 (ITAT Delhi)]
Definition of relative for the
purpose of HUF specifically includes any member of HUF.
Gift received by
any member of HUF from HUF
Gift received by any member of
HUF from the HUF is exempt as HUF consists of only relatives specified in
section 56(2)(vii). [Veenitkumar Rahgavjibhai Bhalodia v. ITO (2011) 12 ITR 616
(Rajkot); DCIT v. Ateev V. Gala, ITA No. 1906/Mum/2014 dated 19.04.2017].
ITAT Ahmedabad Bench in the case
of Gyanchand M. Bardia v. ITO, ITA No. 1072/Ahm/2016 decided on 21.02.218
however, has taken a contrary view in view of the fact that in the context of
HUF individual has been mentioned as relative whereas in the case of individual
HUF is not included as relative.
(2) On the occasion of the
marriage of the individual
Gift
received by any person (without limit) on the occasion of the marriage is tax
free in the hands of individual (recipient).
For
example:
If
your friend or relative or any other person gift you on your marriage then
nothing will be taxable.
The recipient
should be person getting married. Thus, where father of the groom or bride
receives any gift, the same would not be exempted under this clause
GiftTaxability of gifts received
on marriage of daughter - Assessee filed return for assessment year 2007-08
showing income of Rs. 21,07,513 as gifts from relative and friends on the
occasion of daughter's marriage. Assessing Officer ordered addition of this
amount holding that section 56(2)(vi) does not permit gifts on account of
assessee's daughter's wedding to be computed as "Income from other
sources". The assessee contended that the word "individual"
appearing in proviso (b) under section 56(2)(vi) has to be interpreted, to
include gifts received on the marriage of assessee's children. CIT(A) and
Tribunal rejected assessee's contention. Held: The expression
"individual" appearing in proviso (b) to section 56(2)(vi), is
preceded by the words "marriage" and therefore, relates to the
marriage of the individual concerned, i.e., the assesses and not to the
marriage of any other person related to him in whatsoever degree, whether as
his daughter or son. The expression "marriage of the individual" is
unambiguous in its intent and does not admit to an interpretation that it would
include an amount received on the marriage of a daughter. If legislature had
intended that gifts received on the occasion of marriage of the assessee's
children should be exempted, nothing prevented Legislature from adding the
words "or his children", after the words "marriage of the
individual". (Related Assessment year : 2007-08) – [Rajinder Mohan Lal v. DCIT (2013) 263 CTR 231 : 218 TAXMAN 0213 : 95
DTR 126 (P&H)]
If
the gift is associated with the event of marriage or if the reason or immediate
cause for the gift is the marriage, marriage, it will be covered covered by the
expression expression 'on the occasion of the marriage'. The relationship
between the gift and the marriage is, thus, the relevant factor and not the
time of making the gift ‐
[CGT v. Dr. (Mrs.) Neelambai Ramaswamy (1987)
164 ITR 369 (Mad.)]
On the occasion of marriage does not mean on
the day of marriage but would also include other functions of marriage and also
time near about the marriage. [CGT v. Budur Thippiah (1976) 103 ITR].
However, the gifts received on marriage anniversary, birthday, silver
jubilee etc. are not exempt.
(3) Under a will or by way of
inheritance
Any sum of money or any property is received under a
will or by way of inheritance it is totally exempt from Gift Tax. So if any person
gets a Property worth Rs. 50,00,000 and some other things worth Rs. 50, 00,000
through inheritance, then he will not have to pay any tax on such gift
received.
(4) In contemplation of death of
the payer or donor, as the case may be
Any
sum of money or any property is received in contemplation of death is also
exempt from gift tax.
A gift received in contemplation of death means when
man, who is ill and expects to die shortly because of his illness, give his movable
property possession to another to keep as a gift in case if he will die because
of that illness.
Such
a gift may be resumed by the giver; and shall not take effect if he recovers
from the illness during which it was made; nor if he survives the person to
whom it was made.
What is meant by “In
Contemplation of Death”?
The
requirements of a ‘gift in contemplation of death’ are laid down in section 191
of the Indian Succession Act, 1925 which provide two requirement that the donor
must be ill and expected to die shortly and the possession of the property
should be delivered to the donee during the lifetime of the donor. – [F. Susai Raju v. ITO, (2017) 163 ITD 533
(ITAT Chennai)]
The
requirements requirements of a "gift in contemplation contemplation of
death" as laid down by section 191 of the Indian Succession Act are :
(i)
the gift must be of movable property;
(ii) it must be made in contemplation of death;
(iii) the donor must be ill and he expects to die
shortly of the illness;
(iv) possession of the property should be delivered
to the donee; and
(v) the gift does not take effect if the donor
recovers from the illness or the donee predeceases the donor’. – [CGT v. Abdul Karim Mohd. (1991) 191 ITR
0317 (SC)]
(5)
From any local authority as defined in the Explanation to clause (20) of
section 10
There
no tax liability occurs when any amount received from local authority, trust or
university as a gift hence recipient is not liable to pay tax on such gift.
(6) From any fund or foundation or university
or other educational institution or hospital or other medical institution or
any trust or institution referred to in clause (23C) of section 10
Gifts
received from any fund or foundation or university or other education
institution referred to in Section 10(23C) of the Income Tax Act 1961.
(7) From or
by any trust or institution registered under section 12A or section 12AA
Gifts received from
any trust or institution registered under section 12AA or
Section 12AB (after 1st October,
2020) of the Income Tax Act 1961.
(8) by any fund or trust or institution or any
university or other educational institution or any 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
(9) 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
FOLLOWING CERTAIN TRANSACTIONS
EXEMPT UNDER SECTION 47 ARE EXEMPT
Section 47(i) : distribution of capital assets on the total
or partial partition of an HUF
Section 47(iv): transfer of a Capital assets by a company
to its subsidiary company
Section 47(v): transfer of a Capital assets by a subsidiary
Company to the holding company.
Section 47(vi): transfer during amalgamation… where
amalga-mated Company is an Indian Company.
Section 47(via): transfer during
amalgamation where amalgamated company is foreign company.
Section 47(viaa): transfer during
amalgamation of a banking company with a banking company.
Section 47(vib): transfer, in a
demerger, of a Capital assets by the demerged company to the resulting company,
if the resulting company is an Indian company.
Section 47(vic): transfer in a
demerger, of a Capital assets, being a share(s) held in an Indian company, by
the demerged foreign company.
Section 47(vica): any transfer in
a business reorganization, of a Capital assets by the predecessor co-operative
bank to the successor co-operative bank.
Section 47(vicb): any transfer by
a shareholder, in a business reorganization, of a capital asset being a share
or shares held by him in the predecessor co-operative bank.
Section 47(vid): any transfer or
issue of shares by the resulting company, in a scheme of demerger to the
shareholders of the demerged company if the transfer or issue is made in
consideration of demerger of the undertaking.
Section 47(vii): any transfer by
a shareholder, in a scheme of amalgamation, of a Capital assets being a share
or shares held by him in the amalgamating company.
(10) From an individual by a
trust created or established solely for the benefit of relative of the
individual
Provisions of
Section 56(2)(x) of the Act specifically provides that any gift received from
individual by the Trust created or established solely for the benefit of
relative of the individual will be exempt.
Receipt in the capacity of beneficiaries on
dissolution of trusts cannot be taxed u/s 56(2)(vi) as the money received is
not "without consideration. – [Mrs.
Sandhya A. Pratap (2017) TaxCorp (LJ) 12218 (ITAT)]
The amount received by a person as beneficiaries on
the distribution of trust corpus of trust or otherwise cannot be termed to be
an amount received 'without consideration'. – [Ashok C. Pratap v. ACIT (2012) 139 ITD 533 (ITAT Mumbai); Mrs. Sharon
Nayak v. DCIT (2016) 159 ITD 143 (ITAT Bangalore)]
Trust income distributed to the beneficiary is a
distribution of tax paid income and, therefore, it cannot be taxed again in the
hands of the beneficiary. – [CIT v. Smt.
Kamalini Khatau (1994) 209 ITR 101 (SC)]
Transfer of Trust Property by the Trustee to the
beneficiary cannot be said to be a transfer without consideration for levy of
Gift Tax. – [Commissioner of Gift-tax v.
Trustees of H.E.H. the Nizam's Wedding Gift Trust (1989) 175 ITR 266 (AP)]
No adjustment where the variation between stamp duty
value and the sale consideration is not more than 10% (5% from assessment year
2019-20 to assessment year 2020-21) of the sale consideration
Where any person receives any immovable property for
a consideration, the stamp duty value of such property as exceeds such
consideration, if the amount of such excess is more than the higher of the
following amounts, namely:—
(i)
the amount of Rs. 50,000; or
(ii) the amount of 10% (5% from
assessment year 2019-20 to assessment year 2020-21) of the consideration
Ø shall be charged to tax under the
head ”Income from other sources”
In other words, Section 56(2)(x) will be applicable
only if stamp duty value exceeds 105% of consideration - From the assessment
year 2019-20, section 56(2)(x) will be applicable if the following conditions
are satisfied —
(i)
A person receives an immovable property
from any person.
(ii) Stamp
duty value exceeds 110% (105% from assessment year 2019-20 to assessment year
2020-21) of consideration.
(iii)
Difference between consideration and stamp duty value is more than Rs. 50,000.
From
the assessment year 2019-20, the difference between stamp duty value and
consideration is taxable under the head “Income from other sources” only if the
above conditions are satisfied.
Scheme
of taxability of Gifts [Section 56(2)(x)]
|
S.
No. |
Nature
of asset |
Taxable
value |
|
1. |
Sum
of money without consideration |
The
whole amount, if the aggregate value exceeds Rs. 50,000 |
|
2. |
Movable
property |
(i)
Received without consideration: The aggregate FMV of the property, if it
exceeds Rs. 50,000 |
|
(ii)
Received for inadequate consideration: The difference between the
aggregate FMV and the consideration, if such difference exceeds Rs. 50,000. |
||
|
3. |
Immovable
property |
(i)
Received without consideration: The
stamp duty value (SDV) of the property, if it exceeds Rs. 50,000. |
|
(ii)
Received for inadequate consideration: The difference between SDV and
the consideration, if such difference exceeds Rs. 50,000 |
PROVISIONS
ILLUSTRATED – 1:
|
S.
No. |
Nature
of asset |
Consideration
type |
Existing
Taxable Value |
Taxable
value for Financial Year 2019-20 |
|
1 |
Money |
Without
Consideration |
The
whole amount if it exceeds Rs. 50,000 |
Same |
|
2 |
Movable
property |
Without
Consideration |
FMV
(Fair market value) of the property if it exceeds Rs. 50,000 |
Same |
|
3 |
Movable
property |
Inadequate
Consideration |
Difference between FMV and
actual consideration if such difference exceeds Rs. 50,000 |
Same |
|
4 |
Immovable
property |
Without
Consideration |
Stamp value of the property if
it exceeds Rs. 50,000 |
Same |
|
5 |
Immovable
property |
Inadequate
Consideration |
Difference between stamp value
and actual consideration if such difference exceeds Rs. 50,000 |
Difference between stamp value
and actual consideration if such difference exceeds Rs. 50,000 or 10% (5%
from assessment year 2019-20 to assessment year 2020-21) of consideration
whichever is higher |
PROVISIONS ILLUSTRATED – 2:
|
Say
Mr. X sold a flat to Mr. Y for a consideration of Rs. 80 Lacs. However, at
the time of registration, value adopted by stamp valuation authority is Rs.
82 Lacs. Then in such a case: For
Mr. X: Full value of consideration (i.e. sale price) will be deemed to be Rs.
80 Lacs only. Since stamp duty value does not exceed 105% of consideration
(i.e. 105% of Rs. 80 Lacs = 84 Lacs). For
Mr. Y : Rs. 0 (NIL) will be treated as Income from other sources (Since
difference of Rs. 2 Lacs is less than Rs. 4 Lacs (i.e. Rs. 50,000 or 5% of
Rs. 80 lacs = 4 Lacs, whichever is higher). |
PROVISIONS
ILLUSTRATED – 3:—
|
Say
Mr. X sold a flat to Mr. Y for a consideration of Rs. 80 Lacs. However, at
the time of registration, value adopted by stamp valuation authority is Rs.
90 Lacs. Then in such a case: For
Mr. X: Full value of consideration (i.e. sale price) will be deemed to be Rs.
90 Lacs only. Since stamp duty value is > 105% of consideration. For
Mr. Y : Rs. 10 Lacs will be treated as Income from other sources (Since
difference of Rs. 10 Lacs is greater than Rs. 4 Lacs (i.e. Rs. 50,000 or 5%
of Rs. 80 Lacs = 4 Lacs, whichever is higher). |
Section
56(2)(x) not applicable in transactions between holding and 100% subsidiary
companies
Fourth proviso to section 56(2)(x) has been amended
with effect from the assessment year 2018-19. After this amendment, section
56(2)(x) will not be applicable if a capital asset is received by a holding
company from its 100 per cent subsidiary company (and vice versa) provided the
transferee-company is an Indian company.
CBDT revises definition of ‘Unauthorised Colony’ for
the purpose exemption under section
56(2)(x)
The CBDT has revised the definition of ‘unauthorised
colony’ as mentioned in newly inserted rule 11UAC. Now, ‘unauthorised colony’
shall have same meaning as assigned to it in section 2(b) of the NCT of Delhi (Recognition
of Property Rights of Residents in Unauthorised Colonies) Act, 2019. Rule 11UAC
was inserted to provide that provisions of Section 56(2)(x) shall not be
applicable to any immovable property received by resident of unauthorized
colony.
CBDT
Notification No. 40 /2020/F. No.370149/143/2019-TPL, dated 29.06.2020
CBDT vide Notification No. 40/2020 dated 29.06.2020 further amended Rule 11UAC of the Income Tax Rules, 1962 to
provide an exemption from applicability of the provisions of section 56(2)(x)
in the case of NCLT approved resolution
plans and Yes Bank
Reconstruction scheme.
Text
of Rule 11UAC
Prescribed
class of persons for the purpose of clause (xi) of the proviso to clause (x) of
sub-section (2) of section 56.
11UAC. The provisions of clause (x) of sub-section
(2) of section 56 shall not apply to,-
(1) any immovable property, being land or building
or both, received by a resident of an unauthorized colony in the National
Capital Territory of Delhi, where the Central Government by notification in the
Official Gazettee, regularised the transactions of such immovable property
based on the latest Power of Attorney, Agreement to Sale, Will, possession
letter and other documents including documents evidencing payment of
consideration for conferring or recognising right of ownership or transfer or
mortgage in regard to such immovable property in favour of such resident.
Explanation.—For the
purposes of this sub-rule,-
(a)
"resident" means a person having physical possession of property on
the basis of a registered sale deed or latest set of Power of Attorney,
Agreement to Sale, Will, possession letter and other documents including documents
evidencing payment of consideration in respect of a property in unauthorised
colonies and includes their legal heirs but does not include tenant, licensee
or permissive user;
(b)
“unauthorised colony” shall have the same meaning as assigned to it in clause
(b) of section 2 of the National Capital Territory of Delhi (Recognition of
Property Rights of Residents in Unauthorised Colonies) Act, 2019 (45 of 2019).
(2) any movable property,
being unquoted shares, of a company and its subsidiary and the subsidiary of such
subsidiary received by a shareholder, where,—
(i) the Tribunal, on an
application moved by the Central Government under section 241 of the Companies Act,
2013, has suspended the Board of Directors of such company and has appointed
new directors nominated by the Central Government under section 242 of the said
Act; and
(ii) share of company and
its subsidiary and the subsidiary of such subsidiary has been received pursuant
to a resolution plan approved by the Tribunal under section 242 of the
Companies Act, 2013 after affording a reasonable opportunity of being heard to
the jurisdictional Principal Commissioner or Commissioner.
Explanation.— For the purposes
of this sub-rule,-
(a) a company shall be a
subsidiary of another company, if such other company holds more than half in nominal
value of the equity share capital of the company;
(a) a company shall be a
subsidiary of another company, if such other company holds more than half in nominal
value of the equity share capital of the company;
(b) "Tribunal"
shall have the meaning assigned to it in clause (90) of section 2 of the
Companies Act, 2013 (18 of 2013).
(3) any
movable property, being equity shares, of the reconstructed bank, received by
the investor or the investor bank, as the case may be, where the said share has
been allotted by the reconstructed bank under the scheme at a price specified
in sub-paragraph (3) of paragraph 3 of the scheme.
Explanation. — For the
purposes of this sub-rule,-
(a) “investor” shall have
the same meaning as assigned to it in sub-clause (b) of clause (1) of paragraph
2 of the Scheme;
(b) “investor bank ” shall
have the same meaning as assigned to it in sub-clause (c) of clause (1) of
paragraph 2 of the Scheme;
(c) “reconstructed bank”
shall have the same meaning as assigned to it in sub-clause (d) of clause (1)
of paragraph 2 of the Scheme;
(d) “Scheme” means Yes
Bank Limited Reconstruction Scheme, 2020.
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