Understanding the provisions of Section

56 (2) (x)
Meaning and applicability of Section 56 (2) (x)
Particulars of Section 56(2)(x)
Immovable Property
Without consideration
Inadequate consideration
Movable Property
Without consideration
Inadequate consideration
Exemptions under Section 56 (2) (x)
Gift received from a relative
Gift received on specified occasions
Gift received from certain trusts or institutions
Gift received under certain agreements
Impact of Section 56 (2) (x) on taxpayers
Illustrations
Penalties for non-disclosure

Key Takeaways:

➢ Section 56(2)(x) of the Income Tax Act, 1961 is a provision that taxes gifts received by
individuals or HUFs from non-relatives or on non-specified occasions.
➢ The provision covers both immovable and movable property, and applies if the sum of
money or value of property received exceeds Rs. 50,000 without consideration or for
inadequate consideration.
➢ There are some exemptions available for gifts received from relatives, on specified
occasions, from certain trusts or institutions, and under certain agreements made for
personal reasons.
➢ Taxpayers need to disclose all gifts received during a financial year in their income tax
return and pay tax, if applicable.

Section 56(2)(x) is a provision in the Income Tax Act, 1961 that deals with the taxability of gifts
received by an individual or Hindu Undivided Family (HUF) from any person other than relatives
or on the occasion of marriage. The provision was introduced by the Finance Act, 2017 to widen
the scope of taxation of gifts and curb tax evasion through transactions involving transfer of
money or property without adequate consideration.
In this blog post, we will explain the meaning and applicability of Section 56 (2) (x), the
exemptions available under it, and the impact and penalties for non-compliance.

Meaning and applicability of Section 56 (2) (x)

Section 56 (2) (x) states that where an individual or HUF receives any sum of money or any
property from any person without consideration or for inadequate consideration, the value of
such money or property shall be taxable as income from other sources in the hands of the
recipient.

The provision applies to any sum of money or any property received by an individual or HUF
from any person, whether resident or non-resident, except in certain cases where the gift is
exempt from tax.

The term 'property' includes immovable property, shares and securities, jewellery,
archaeological collections, drawings, paintings, sculptures, any work of art, bullion, and any
other capital asset.

Particulars of Section 56(2)(x)

Under Section 56(2)(x), any sum of money or value of property received without consideration
or for inadequate consideration is subject to tax in the hands of the recipient if it exceeds Rs.
50,000. The provision applies to all transactions involving immovable property (both land and
building) and movable property other than immovable.

Immovable Property

In the case of immovable property, the taxability is determined as follows:

Without consideration

If the property is received without consideration and its value exceeds Rs. 50,000, it will be
subject to tax in the hands of the recipient.

Inadequate consideration

If the property is received for inadequate consideration, its taxability is determined as follows:

Stamp duty value - Consideration, if such consideration is more than the higher of:
 ● Rs. 50,000
● 10% of the consideration.

Movable Property

In the case of movable property other than immovable, the taxability is determined as follows:

Without consideration

● If the property is received without consideration and its value exceeds Rs. 50,000, it will
be subject to tax in the hands of the recipient.

Inadequate consideration

If the property is received for inadequate consideration, its taxability is determined as follows:

● Difference between the aggregate FMV and such consideration exceeds Rs. 50,000.

Exemptions under Section 56 (2) (x)

Section 56 (2) (x) does not apply to gifts received by an individual or HUF in the following cases:

- Gift received from a relative

- Gift received on specified occasions
- Gift received from certain trusts or institutions
- Gift received under certain agreements

Gift received from a relative

If an individual or HUF receives a gift from a relative, as defined under the Income Tax Act, the
gift amount is exempt from tax. The term 'relative' includes spouse, siblings, siblings of the
spouse, parents, grandparents, and lineal descendants.

Gift received on specified occasions

Gifts received by an individual or HUF on certain occasions such as marriage, inheritance, or

under a will, are also exempt from tax under Section 56 (2) (x).
Gift received from certain trusts or institutions

Gifts received by an individual or HUF from a trust or institution registered under Section 12AA
or Section 10(23C) of the Income Tax Act are also exempt from tax under Section 56 (2) (x).

Gift received under certain agreements

Gifts received by an individual or HUF under an agreement made for personal reasons and not
for business purposes are also exempt from tax under Section 56 (2) (x), subject to certain
conditions.

Impact of Section 56 (2) (x) on taxpayers

Section 56 (2) (x) has significant implications for taxpayers in India. Firstly, it has brought all
gifts under the purview of taxation, irrespective of the relationship between the donor and the
recipient. Secondly, the provision has led to increased compliance requirements for taxpayers
who receive gifts. Taxpayers need to disclose all gifts received during a financial year in their
income tax return and pay tax, if applicable.

Illustrations

Steps to calculate income from section 56(2) (x)

Step 1: Determine the Types of Gifts and Winnings Received

The first step is to identify the types of gifts and winnings received during the year. In our
example, the individual received the following:

Amount received from race winnings: Rs. 35,000

Gift from a friend: Rs. 20,000
Gift from an elder brother: Rs. 1,00,000
Gift on marriage: Rs. 1,40,000
Gift from an NRI friend on 1-1-2022: Rs. 80,000
Gift from a cousin: Rs. 18,000

Step 2: Determine Exempted Gifts

Certain gifts are exempt from tax and do not need to be included in the taxable income. In our
example, the gifts from an elder brother and on marriage are exempt from tax.
Step 3: Calculate Taxable Income

To calculate the taxable income, follow the steps below:

Calculation for Amount Received from Race Winnings

Rs. 35,000 * 100/70 - Rs. 5,00,000 = Rs. 15,000

Calculation for Gift from a Friend

The gift from a friend is taxable as it exceeds the limit of Rs. 50,000. Therefore, the entire
amount of Rs. 20,000 will be included in the taxable income.

Calculation for Gift from an NRI Friend

The gift from an NRI friend is also taxable as it exceeds the limit of Rs. 50,000. Therefore, the
entire amount of Rs. 80,000 will be included in the taxable income.

Calculation for Gift from a Cousin

The gift from a cousin is taxable as it exceeds the limit of Rs. 50,000. Therefore, the entire
amount of Rs. 18,000 will be included in the taxable income.

The taxable income under the head 'Income from Other Sources' for AY 2022-23 will be Rs.
1,13,000 (Rs. 15,000 + Rs. 20,000 + Rs. 80,000 + Rs. 18,000).

Penalties for non-disclosure

Non-disclosure of gifts received in the income tax return can attract a penalty under Section
271(1)(c) of the Income Tax Act. The penalty amount can be up to three times the amount of tax
payable on the undisclosed gift amount.

In conclusion, It is important to note that Section 56(2)(x) of the Income Tax Act of India is not
a straightforward provision, and its application can be complex.