BACKGROUND
Gifts have always been a topic of
hot discussion as far as income tax laws in India are concerned. We have
experienced a lot of changes in taxability of gifts. It is said that ‘necessity
is the mother of inventions’, so I quote that ‘loop hole is the mother of
amendments’. Because of various lacunas and loop holes, the income taxation of
gifts in India has undergone lot many changes.
These include abolition of Gift Tax
Act, changes in limit of gifts accepted from per person to a blanket limit, including
gift of immovable properties in tax bracket, etc.
This gives rise to a need for a
detailed study the income taxation of gifts in India.
WHAT IS A GIFT?
The dictionary meaning of gift is ‘a
thing given to someone without payment.’
Section 122 of Transfer of Property
Act, 1882 defines Gift as ‘the transfer of certain existing movable or
immovable property made voluntarily and without consideration, by one person
called donor, to another, called donee, and accepted by or on behalf of the
donee.’
If we analyze this definition, we
get the following essentials of a gift.
There must be transfer of ownership The ownership must be of a property
in existence The property can be movable or
immovable The transfer must be without
consideration The transfer must be voluntary The donor must be a party competent
to contract The donee must accept the gift
So, a gift will be complete only if
all the above conditions are satisfied.
Gift has nowhere been defined under
the Income Tax Act, 1961. However,
section 56(2)(x) mentions certain moneys and properties received by assessee as
taxable in the hands of receiver. These receipts of moneys and properties
without any consideration can be construed as gift received by the assessee.
SECTION 56(2)(x)
Section 56(2)(x) of the Income Tax
Act, 1961 reads as under:
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;
(B)
[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:]*
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:
Provided also that where the stamp duty value of
immovable property is disputed by the assessee on grounds mentioned in
sub-section (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 section 12A or
section 12AA; 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 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.
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).
{* This sub clause shall be
substituted by Finance Act, 2018 with following words w.e.f. 1st
April, 2019
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 five per cent of the consideration:}
SECTION 56(2)(x) – AN ANALYSIS
The sub clause (x) of clause (2) to
section 56 was inserted by the Finance Act, 2017 w.e.f. 1st April,
2017. This clause defines taxability of amounts or properties received without
any consideration. These are referred to as ‘gifts’ in common parlance.
Accordingly, the following amounts are taxable. However, these amounts are
subject to exceptions that are mentioned thereafter.
1.
Whole amount of money received (from
person or persons), if it exceeds Rs. 50,000.
If a person receives
from any other person or persons amounts exceeding Rs. 50,000 in aggregate,
then entire such sum is taxable. This limit is not per payer but in aggregate.
Also, point is to be noted that the amount of Rs. 50,000 is not a threshold
exemption, but a maximum limit exceeding which the entire amount becomes
taxable.
So, if a person
receives Rs. 25,100 and Rs. 25,000 from two different persons, then as the
aggregate amount being Rs. 50,100 exceeds Rs. 50,000 the entire amount of Rs.
50,100 is considered as taxable income charged under income from other sources.
The same principle applies to other sub clauses under section 56(2)(x).
2.
The stamp duty value of an immovable
property received without any consideration, if such value exceeds Rs. 50,000.
If a person receives
from another person or persons, any immovable property without any
consideration, and the stamp duty value of such property exceeds Rs. 50,000 in
aggregate, such entire amount becomes taxable. This provision relating to gift
of immovable property was introduced w.e.f. 1st October, 2009.
Whereas, in case of
amount of money received or property other than immovable property is received,
the aggregate of the amount received during the year is considered for the
limit of Rs. 50,000, in case of an immovable property, the limit of Rs. 50,000
is counted separately for each property.
3.
The differential amount in the stamp
duty value and actual consideration of an immovable property where the actual
consideration is less than the stamp duty value, and the difference in such
value exceeds Rs. 50,000.
If a person receives from
another person or persons an immovable property where the consideration paid
for the same is less than the stamp duty value and such difference is more than
Rs. 50,000 then entire such difference is considered taxable.
This creates a
practical difficulty in cases where the fair market value of the immovable
property is less than the stamp duty value of the said immovable property. In
such cases, the assessees may face hardship as the amount becomes taxable
despite not in the nature of income (gift).
However, to avoid this
difficulty, the third proviso states that in such cases, the assessing officer
may refer the case to valuation officer for assessing the fair market value of
the property. This proviso is a relief to assessees in bonafide cases.
Another difficulty
comes in case of properties with huge valuation and the consideration so paid
in marginally less than the stamp duty value but more than Rs. 50,000. For
example, a property having stamp duty value Rs. 5 crores, is purchased for a
consideration of Rs. 4.80 crores. In this case the difference is marginal
however more than 50,000.
This difficulty is
removed by Finance Act, 2018 w.e.f. 1st April, 2019 where the
difference if less than 5% of consideration shall not be taxable.
4.
The fair market value of any
property, other than immovable property, received without any consideration, if
such value exceeds Rs. 50,000.
If a person receives
any property, other than an immovable property, from another person or persons,
the aggregate value of which exceeds Rs. 50,000 then the entire of such value
of the property so received becomes taxable. This provision has been introduced
w.e.f. from 1st October, 2009.
5.
The differential amount in the fair
market value and actual consideration of any property, other than immovable
property, where the actual consideration is less than the fair market value,
and the difference in such value exceeds Rs. 50,000.
If a person receives
from another person or persons any property, other than an immovable property,
where the consideration paid is less than the fair market value of such
property and such difference exceeds Rs. 50,000, the aggregate of such
difference becomes taxable.
Following are some illustrations on
the above provisions.
|
Type of Property
|
Value
|
Consideration Paid
|
Taxability
|
|
Money
|
45,000
|
0
|
No
|
|
Money
|
51,000
|
0
|
Yes
|
|
Money
|
A – 24,000
B – 24,000
|
0
|
No
|
|
Money
|
A – 24,000
B – 26,100
|
0
|
Yes
|
|
Immovable Property
|
49,000
|
0
|
No
|
|
Immovable Property
|
51,000
|
0
|
Yes
|
|
Immovable Property
|
5,00,000
|
4,60,000
|
No
|
|
Immovable Property
|
5,00,000
|
4,40,000
|
Yes
|
|
Immovable Property1
|
25,00,000
|
24,60,000
|
No
|
|
Immovable Property1
|
25,00,000
|
24,00,000
|
No
|
|
Immovable Property1
|
25,00,000
|
23,75,000
|
Yes
|
|
Other Property
|
49,000
|
0
|
No
|
|
Other Property
|
51,000
|
0
|
Yes
|
|
Other Property
|
1,00,000
|
51,000
|
No
|
|
Other Property
|
1,00,000
|
45,000
|
Yes
|
1 – Introduced by Finance Act, 2018 applicable for
transactions entered into after 1st April, 2019.
EXCEPTIONS
The aforementioned provisions are
subject to certain exceptions. The amounts received from following persons or
on following occasions are exempt from tax even received without sufficient
consideration.
1.
From relatives:If any amounts of money or property are
received from relatives of the individual, such amounts are exempt from tax.
The proviso to clause (vii) also mentions the list of relatives which is as
under.
a. In case of an individual
i.
Spouse of the
individual
ii.
Brother of the
individual
iii.
Sister of the individual
iv.
Brother of the spouse
of the individual
v.
Sister of the spouse
of the individual
vi.
Brother of the either
of the parents of the individual
vii.
Sister of the either
of the parents of the individual
viii.
Lineal ascendant or
descendant of the individual
ix.
Lineal ascendant of
descendant of the spouse of the individual
x.
Spouse of
above-mentioned persons
b. In case of a Hindu Undivided Family – its
members.
In case of relatives
of an individual, it is not necessary that the exemption is available
reciprocally for all relatives. For example, amount received by the nephew from
his uncle is exempt, but amount received by the uncle from his nephew is not
exempt. So, utmost care is to be taken to ascertain the exemption status before
determining the taxability of the transaction.
In case of a Hindu
Undivided Family, amount received from its members is exempt. However, amount
received by an individual from HUF is not exempt.[Gyanchand M. Bardia
v. Income Tax Officer,(Ahmedabad - Trib.) 2018 ITL 1035]
2.
On occasion of marriage: Amounts of money or property
received by an individual on occasion of his / her marriage, without
consideration are exempt. The exemption is simple but again care has to be
taken to understand that such amounts or property received on occasion of
marriage, and not before or after that, are exempt. For example, money or
property received at the engagement ceremony, or received before or after
marriage at any other occasion, etc. are not exempt.
Gifts received on
occasion of marriage of child are not exempt at the proviso specifically
mentions “on occasion of marriage of the individual” [Rajinder Mohan Lal v. Dy. CIT, Punjab and Haryana High Court, 2013]
3.
Under a will or by inheritance: Amount of money or property received
by a person under a will of a deceased person or are inherited by the person
are exempt.
4.
In contemplation of the death of the
payer: If a person receives
any money or property without sufficient or without any consideration from a
payer in contemplation or his / her death, it is treated as not taxable.
5.
From local authority: If any amount of money or property
is received from a local authority defined under explanation to section 10(20)
such receipts are exempt from tax.
6.
From a fund, foundation, university,
educational institution, hospital or medical institution referred to under
section 10(23C): If any amount of money
or property is received from the afore mentioned entities those are referred to
under section 10(23C), such amount of money or property is exempt from tax.
7.
From trust or institution registered
u/s 12AA: If any amount of money
or property is received from trusts or institutions registered u/s 12AA of the
Income Tax Act, such amount of money or property is exempt from tax.
8.
By way of transaction not regarded
as transfer:If any amount money or
property is received by way of a transaction that is not regarded as transfer
pursuant to clause (vicd) or clause (vid) or clause (vii) of section 47, then
such amount of money or property is not regarded as taxable.
The respective
transactions not regarded as transfer are mentioner hereunder.
a. by a shareholder, in a business
reorganisation, of a capital asset being a share or shares held by him in the
predecessor co-operative bank if the transfer is made in consideration of the
allotment to him of any share or shares in the successor co-operative bank.(vicd)
b. 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. (vid)
c. any transfer by a shareholder, in a
scheme of amalgamation, of a capital asset being a share or shares held by him
in the amalgamating company, if—
(a)
the transfer is made
in consideration of the allotment to him of any share or shares in the
amalgamated company except where the shareholder itself is the amalgamated
company, and
(b)
the amalgamated
company is an Indian company. (vii)
PROPERTY
For the purpose of section 56(2)(x),
property means the following capital asset of the assessee, namely –
a. immovable property being land or
building or both
b. shares and securities
c. jewellery
d. archaeological collections
e. drawings
f. paintings
g. sculptures
h. any work of art
i. bullion
Any other asset apart from the
above-mentioned property is not considered as ‘property’ for the purpose of
this section.
GIFT DEED
Following points are relevant with
respect to gift deed.
1. The gift of an immovable property is
complete only if it is done vide a gift deed and the same is registered and
requisite stamp duty is paid.
2. The gift of a movable property or
money doesn’t require a gift deed. However, it is advisable to make a gift deed
for movable property and money also.
3. The gift deed should also contain
the acceptance of the receiver of gift as the gift transaction is not complete
unless accepted by the donee.
OTHER POINTS FOR CONSIDERATION
Few other points of consideration in
case of transaction of gifts are as below:
1. In case of gift of money received
for Rs. 2,00,000 or above in cash, the penalty u/s 269ST shall get attracted.
2. The onus to prove the transaction of
the gift lies on the receiver of the gift.
3. In case of gifts that are exempt
owing to the proviso to section 56(2)(x), the existence, genuineness and
credibility of the donor is also required to be proved and the onus is on the
receiver to prove it.
4. The effect of other applicable laws
like Registration Act, Stamp Duty Law, Transfer of Property Act, Goods and
Service Act, and other relevant laws has also to be considered for respective
treatment.
DISCLAIMER
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