Taxability of gifts under income tax act
Meaning of gifts:
The gifts were taxable earlier till 1st October, 1998 under the Gift Tax Act, 1958. The provisions regarding receipts without consideration have been introduced w.e.f. 1st September, 2004. Since most of such receipts tantamount to gifts, the provisions are popularly known, as relating to gifts and deemed gifts, although the coverage is wider to include all other specified receipts without consideration or for inadequate consideration.
The provisions initially covered only sum of money received without consideration. Thereafter, the provisions have been expanded from time to time. Till 30th September, 2009, only sum of money exceeding prescribed limit received without consideration was taxable if the recipient was either an individual or an HUF. W.e.f. 1st October, 2009, the provisions include cases of immovable properties in the nature of land or building or both received without consideration to be taxed on the basis of stamp valuation. Thereafter, the cases of such immovable properties purchased at less than fair market value are also included in the net of 56(2).
W.e.f. 1st June, 2010, the provisions are applicable to firms and closely held companies in respect of shares of closely held companies without consideration or for inadequate consideration. Valuation rules were introduced in Rule 11U and 11UA. Thereafter, w.e.f. 1st April, 2013, share premium received by closely held companies in excess of fair market value of issued shares was also covered. However, w.e.f. 1st April, 2017, the scope of section 56(2) in respect of receipts without consideration or for inadequate consideration has been further expanded to include every person.
Section 56: Income from other sources.
(1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head “Income from other sources”, if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E.
(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head “Income from other sources”, namely :—
where any person receives, in any previous year, from any person or persons on or after the 1st day of April, 2017,—
- any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;
- any immovable property,—
- without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;
- for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration:
Following item (B) shall be substituted for the existing item (B) of sub-clause (b) of clause (x) of sub-section (2) of section 56 by the Finance Act, 2018, w.e.f. 1-4-2019 :
(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:—
- the amount of fifty thousand rupees; and
- the amount equal to five 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, on or before the date of agreement for transfer of such immovable property:
Reporting requirement in tax audit form 3CD:
29B. (a) Whether any amount is to be included as income chargeable under the head ‘income from other sources’ as referred to in clause (x) of sub-section (2) of section 56? (Yes/No)
(b) If yes, please furnish the following details:
- Nature of income:
- Amount (in Rs.) thereof:
A new clause 29B has also been introduced, requiring reporting of amount includible as income chargeable under the head “Income from Other Sources” under section 56(2)(x).
The term “property” has been defined to include only specific types of assets. It has been defined to mean the following capital asset of the assessee, namely:—
I. immovable property being land or building or both;
II. shares and securities;
IV. archaeological collections;
VIII. any work of art; or
Receipt of assets, other than these, would not be covered by the provisions of this section, and would therefore not be required to be reported.