***Taxation of Gifts and Zero Rating of Gift Transactions In The Hands of Individual

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Section 56(2)(x) of the Income Tax Act, 1961, is a wide-ranging anti-abuse provision aimed at taxing gifts and property transfers; received without consideration or for inadequate consideration. Its primary objective is to prevent tax evasion through the use of high-value gifts and under-valued property transfers.

Key Provisions:

Scope and Applicability of Section 56(2)(x)

• Applies to any person (Individuals, Hindu Undivided Families (HUFs), Firms, and other entities) who receives money or property without consideration or for inadequate consideration
• Effective from April 1, 2017
• Covers both movable (e.g. Cash, Cheque, Bank Transfer, Shares, Jewelry) and immovable property (e.g., Flat, Land, Buildings etc.)
• Triggered when the aggregate value of money or property received exceeds ₹50,000 in a financial year

Taxable Transactions

Section 56(2)(x) taxes the following receipts:

• Money: If a person receives money (cash, cheque, bank transfer) without consideration and the aggregate amount exceeds ₹50,000, the entire amount is taxable as Income.
• Immovable Property: If any immovable property is received without consideration and the stamp duty value (‘SDV’) exceeds ₹50,000, the whole SDV is taxable. If received for inadequate consideration (i.e., at a price lower than SDV by more than ₹50,000), the difference is taxable
• Movable Property: If specified movable property (such as shares, jewellery, paintings) is received without consideration and the fair market value (FMV) exceeds ₹50,000, the FMV is taxable. If received for inadequate consideration (i.e., at a price lower than FMV by more than ₹50,000), the difference is taxable

Exemptions:

Section 56(2)(x) does not apply in the following cases:

• Gifts received from specified relatives (such as Parents, Siblings, Spouse, etc.)
• Gifts received on the occasion of marriage, by way of inheritance, or under a will
• Gifts received in contemplation of death of the Payer or the Donor
• Money/Asset received under a will or inheritance

Gifts from relatives as defined above are fully exempt, regardless of value

Who Qualifies as a “Relative”?

For an individual, the following persons are considered relatives:

• Spouse of the Individual
• Brother or Sister of the Individual
• Brother or Sister of the Spouse of the Individual
• Brother or Sister of either of the parents of the Individual
• Any lineal ascendant or descendant of the Individual (e.g. Parents, Grandparents, Children, Grandchildren)
• Any lineal ascendant or descendant of the Spouse of the Individual
• Spouse of any of the persons listed above (i.e. Brother-in-law, Sister-in-law, Son-in-law, Daughter-in-law, etc.)

The above relationship is summarized in the following table for simplification and easier understanding:

Gifts from the following Relatives and their Spouses is not Taxable irrespective of the amount or value of the Property received
GIFT RECEIVED FROM (i.e DONOR)
Nature of Relationship	Relationship Explained in Hindi	Spouse of the Relative	Whether covered as Relative for Exemption	Remarks
Father	Pitaji	Mataji	Yes
Mother	Mataji	Pitaji	Yes
Wife	Patni	N.A	Yes	Clubbing provisions applicable
Husband	Pati	N.A	Yes	Clubbing provisions applicable
Brother	Bhai	Bhabhi	Yes
Sister	Behan	Jija / Behnoi	Yes
Wife’s Brother	Sala	Sale ki Patni (Bhabhi)	Yes
Wife’s Sister	Sali	Sali ka Pati	Yes
Husband’s Brother	Dever	Devrani	Yes
Husband’s Sister	Nanad	Nanad ka Pati	Yes
Father’s Brother	Chacha	Chachi	Yes
Father’s Sister	Bua/Fufi	Fufa	Yes
Mother’s Brother	Mama	Mami	Yes
Mother’s Sister	Mausi	Mausa	Yes
Son	Beta	Bahu	Yes	Clubbing provisions applicable in case of Minor Son or Daughter in Law
Daughter	Beti	Damad	Yes	Clubbing provisions applicable in case of Minor Daughter
Grand Son	Pota	Pote ki Patni	Yes
Grand Daughter	Poti	Poti ka Pati	Yes
Grand Father	Dada	Dadi	Yes
Grand Mother	Dadi	Dada	Yes

This exemption ensures that genuine family transactions are not subject to tax under Section   56(2)(x)