May 27, 2025, Posted by Admin

Taxation of Gifts and Zero Rating of Gift Transactions in the Hands of an Individual

The Indian Income Tax Act, 1961, under Section 56(2)(x), contains a comprehensive anti-abuse provision that seeks to tax certain gifts and property transfers received without consideration or for inadequate consideration. This section plays a critical role in curbing tax evasion through disguised gifts and undervalued transactions.

Key Provisions of Section 56(2)(x)

Introduced with effect from April 1, 2017, Section 56(2)(x) is applicable to any person, including Individuals, Hindu Undivided Families (HUFs), Firms, and other entities. It covers:

• Movable property such as cash, cheques, shares, jewellery, etc.

• Immovable property such as land, buildings, and flats.

The provision is triggered when the aggregate value of money or property received without or for inadequate consideration exceeds ₹50,000 during a financial year.

Taxability Under Section 56(2)(x)

The following types of transactions are taxable in the hands of the recipient:

1. Money Received Without Consideration

If the total amount of money received (in the form of cash, cheque, or bank transfer) without consideration exceeds ₹50,000 in a financial year, the entire amount is taxable as ‘Income from Other Sources’

2. Immovable Property

• Without consideration: If an immovable property is received for free and the stamp duty value (SDV) exceeds ₹50,000, the entire SDV is taxable.

• For inadequate consideration: If the property is acquired for a value less than the SDV by more than ₹50,000, the difference is taxable.

3. Movable Property

• Without consideration: If the fair market value (FMV) of movable assets received as gifts exceeds ₹50,000, the FMV is taxable.

• For inadequate consideration: If received for a price lower than FMV by more than ₹50,000, the difference is taxable.

Exemptions Under Section 56(2)(x)

The following types of gifts are not taxable, regardless of their value:

• Gifts received from specified relatives

• Gifts received on the occasion of marriage

• Gifts received by way of inheritance or under a will

• Gifts received in contemplation of the death of the donor

Who Qualifies as a ‘Relative’?

For an individual, the term "relative" includes:

• Spouse of the individual

• Brother or sister of the individual

• Brother or sister of the spouse

• Any lineal ascendant or descendant of the individual (e.g., parents, grandparents, children, grandchildren)

• Any lineal ascendant or descendant of the spouse

• Spouse of any of the persons listed above (e.g., son-in-law, daughter-in-law, brother-in-law)

Gifts from any of the above relatives are fully exempt from tax, irrespective of the amount.

Conclusion

Understanding the nuances of Section 56(2)(x) is essential to ensure compliance and avoid unnecessary tax liabilities. While genuine gifts from relatives are protected under the law, non-exempt transactions—especially those involving significant value—can attract tax if not properly structured.

For expert guidance and consultation on gift taxation, feel free to connect with us at:

Jain Anurag & Associates, Chartered Accountants
A leading Chartered Accountancy firm based in Mumbai, specializing in direct tax advisory and compliance.

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