Section 56(2)(x) of Income Tax Act: A Comprehensive Guide

Section 56(2)(x) of the Income Tax Act of 1961 explains the tax implications of gifts received by an individual or Hindu Undivided Family (HUF). The act stipulates that any amount of money, without in cash or real estate, obtained without payment and has a cumulative value greater than Rs. 50,000 is taxable under the heading "Income from Other Sources." The different aspects of Section 56(2)(x) of the Income Tax Act, 1961 are discussed in this article.

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Table of Contents

What is Section 56(2)(x)?

Features of Section 56(2)(x)

Applicability of Section 56(2)(x) of Income Tax Act

Exceptions to Section 56(2)(x)

Conclusion

Most Asked Questions

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What is Section 56(2)(x)?

A new clause (x) was introduced in Section 56(2) of the Income Tax Act by the Finance Act of 2017 specifying that any money or property received by an individual without any consideration or after achieving a specified level would be taxable in the receiver's hands under the heading "Income from other sources." The regulations of clause (x) in Section 56(2) of the Income Tax Act regulate the taxation of gifts received by an individual or HUF. In this article, let's examine Section 56(2)(x) in detail.

Features of Section 56(2)(x)

Receipts for any amount of cash, real estate, or movable property that exceeds the Rs. 50,000 threshold are subject to income tax. The following table shows the taxable amount under this section in detail:

Item	Threshold limit for which not taxable	Amount liable to tax
Sum without consideration	If such sums received during the previous year do not exceed Rs.50000 in the aggregate	The entire amount received (and not just the amount over and above Rs.50000) if the threshold of Rs.50,000 exceeded
Immovable property without consideration	Stamp duty value not exceeding Rs.50000	Stamp duty value of property (if it exceeds Rs.50,000)
Immovable property for the consideration less than stamp duty value	Difference between stamp duty value and consideration not exceeding Rs.50000	Difference between SDV and consideration (if it exceeds 50000)
Movable property without consideration	The aggregate FMV of the property received during the financial year not exceeding Rs.50000	The entire aggregate FMV(and not just the amount over and above Rs.50000) if the threshold of 50,000 exceeded
Movable property for consideration less than their FMV	Difference between aggregate FMV and consideration not exceeding Rs.50000	The entire difference and not just the difference above and beyond Rs.50000 if the threshold of Rs.50,000 is exceeded

Applicability of Section 56(2)(x) of Income Tax Act

Section 56(2)(vii) prevalent claims that any amount of cash or land received by an individual or HUF without consideration is subject to income tax. The only businesses and firms protected by Section 56(2)(vii a) are closely held companies. However, 56(2)(x) covers all types of taxpayers. Section 56(2) includes a clause (x) that necessitates the following receipts:

• Any amount of money received during the fiscal year that adds up to more than Rs. 50,000 without reimbursement

• Any unconsidered immovable property with a customs duty value higher than Rs 50,000

• The proportion subtracted from the property tax value of any immovable property that is more than Rs 50,000

• Any movable property (as defined and specified) with a cumulative fair market value greater than Rs. 50,000, without respect to consideration

• Any moveable property (as defined and specified) listed for sale for more than Rs. 50,000 less than its market value

Exceptions to Section 56(2)(x)

If an individual receives money or property from a relative, the clauses of 56(2)(x) would not apply. It would be the case for an individual's 

• Partner, brother, or sister.

• Any natural ancestor or descendant of the individual, and the person's parents' siblings

• The individual's spouse's brother or sister

• Any natural decedents or heirs of the person's spouse

For an undivided Hindu family

• Any one of its associates

The 56(2)(x) provision would not be applicable to any money or property received in the following circumstances:

• On the occasion of someone's marriage

• Through legacy or a will

• If the donor or payer passes away, as the case may be

• From any municipal authorities as stated in Section 10's explanation to clause (20)

• From any trust or organisation specified in section 10, such as funds, foundations, universities, hospitals, other medical facilities, and other academic institutions 

• Any trust or association authorised under Section 12A or Section 12AA

• Through any loyalty, finance, university, other education department, hospital, or other medical centre mentioned in subclauses (iv), (v), (vi), or (via) of clause (23C) of section 10

• From any person by a trust established exclusively for the benefit of the individual's family members.

Conclusion

The Income Tax Act of 1961's Section 56(2)(x) attempts to prevent tax evasion by restricting high-value transactions through gifts. This section includes gifts given without expectation of return and any total value over Rs. 50,000 is subject to the applicability of income tax from other sources. It applies to all types of movable and immovable property and exempts gifts from some relatives. The gift's market value evaluates the tax liability levied at the recipient's appropriate income tax slab rate.

FAQ

Q1. What is Section 56(2)(x) of the Income Tax Act, 1961?

The Income Tax Act addresses the financial implications of gifts given to individuals or HUFs without evaluation in Section 56(2)(x).

Q2. Who does Section 56(2)(x) apply to?

Individuals and HUFs who receive gifts without any notion are subject to Section 56(2)(x).

Q3. What is the threshold limit under Section 56(2)(x)?

Section 56(2)(x) specifies a threshold amount of Rs. 50,000 for gifts. All gifts received without evaluation that constitute more than Rs. 50,000 during a financial year are subject to income tax from other sources.

Q4. Does Section 56(2)(x) apply to gifts received from relatives?

Gifts from special relatives, such as parents, grandparents, siblings, aunts, uncles, spouses, and in-laws, are exempt under Section 56(2)(x). However, the exemption only applies to individuals and HUFs.

Q5. What is the valuation process for gifts received under Section 56(2)(x)?

The fair market value (FMV) of the gift is used to determine its real value. The entire cost becomes subject to tax as income from other sources if the gift's FMV is more than Rs. 50,000.

Q6. What is the tax rate applicable to gifts received under Section 56(2)(x)?

Unconsidered gifts over Rs. 50,000 are liable for tax at the rate of the recipient's applicable income tax slab.

Q7. Is Section 56(2)(x) applicable to gifts received from employers?

Gifts that individuals or HUFs receive from their business owners as part of their job may also be tax-exempt up to a particular amount.

Q8. What documents have to be maintained for gifts received under Section 56(2)(x)?

A gift declaration or statement validating the gift's details, such as the date of receipt, its value, and the donor's details, should be kept on file as a checklist for gifts received.

Q9. What are the potential outcomes of non-compliance with Section 56(2)(x)?

Income tax authorities may analyse, impose fines, and have legal consequences for noncompliance with Section 56(2)(x).

Q10. Is any exemption available for gifts received from charitable trusts?

There are circumstances in which gifts from certified institutions, charitable organisations, or local officials might not be subject to the tax.