DU SOL Q5 What is the tax treatment of sum of money received as gift under section56(2)?

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Q5 What is the tax treatment of sum of money received as gift under section56(2)? Also explain the provisions relating to taxation of winning from lotteries?

 

Taxation on gift provided U/S 56(2) of income tax act 1961.

 

As per income tax act gifts received are taxable in the hands of recipient under the head of other Sources and there is no taxation for the donor.

 

Here gift means any sum of money, Moveable property or immovable property which received without consideration or inadequate consideration.

 

Here property term include the following

 

Land and building (immovable)

 

Shares and securities (Securities Include debenture, bonds etc).

 

Jewellery (Jewellery includes ornaments made of gold, silver, platinum or any other precious metal whether or not attach any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel .Precious or semi-precious stones also include in the term of jewelry, whether it is set or not in any furniture, utensil or other article or worked or sewn into any wearing apparel)

 

Archeological collection

 

Drawings

 

Paintings

 

Sculpture

 

Any work of art

 

Bullion (Gold And silver in their purest form)

 

There are some rules provided by income tax act 1961 for taxation on gift whether gift is taxable or not. For simplification I   divided this rules in two head

 

i. Exempted Gift

 

ii.  Taxable Gifts

 

Exempted Gift

 

Any sum of amount received (as gift) without consideration up to Rs 50000 in one year is not taxable at anywhere. Further following receipts without consideration are also not income :

 

i. from any relative

 

ii. Gifts received on the occasion of marriage of an individual even from non relatives are not an income

 

iii. under a Will or by way of inheritance;

 

iv. in contemplation of death of payer;

 

v. from local authority as defined in Explanation to section 10(20);

 

vi. educational or medical institution or fund etc. referred to u/s. 10(23C);

 

vii. trust or institution registered u/s. 12AA.

 

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 11[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.

 

 The “relatives” term defines by the Income Tax act as follows :

 

i. Spouse of the individual

 

ii. Brother or sister of the individual

 

iii. Brother or sister of the spouse of the individual

 

iv. Brother or sister of either of the parents of the individual

 

v. Any lineal ascendant or descendant of the individual

 

vi. Any lineal ascendant or descendant of the spouse of the individual

 

vii. Spouse of the person referred to in clauses (ii) to (vi).

 

viii. In case of a Hindu undivided family, any member thereof;

 

For Example:

 

If one of your friend gift u Rs 40000 and another one gift u 10000 then there is no need to pay tax, but if such (gift Received) amount exceeds Rs 50000 than whole amount of money will be taxable

 

E.g: If one of your friend gift u Rs 40000 and another one gift u 20000 then the whole 60000 shall be taxable and recipient has to pay tax as per his slab rate

 

Conclusion

 

Any amount received as gift up to Rs 50000 in one year is not taxable in the hand of recipient. But if amount exceeds Rs 50000 than whole received amount will be taxable. There is limit provided on amount Received in one year as a gift not on amount received by per person

 

Gift Received from Relative

 

Any sum of money or kind received as gift from relatives will not be taxable at all means there is no limit specified for amount (gift) received by relative hence any amount received by relatives is not taxable

 

e.g If your brother gift u Rs 50, 00,000  than it will not be taxable in the hand of recipient (you).

 

Gift received On occasion of the marriage of the individual

 

Gift received by any person (without limit) on the occasion of the marriage is tax free in the hand of individual (recipient).

 

For example: if your friend or relative or any other person gift u on your marriage than nothing will be taxable.

 

Gift received under a will or by way of inheritance

 

Any sum of money or any property is received under a will or by way of inheritance it is totally exempt from Gift Tax. So if any person gets a Property worth Rs 50, 00,000 and some other things worth Rs 30, 00,000 through inheritance, than he will not have to pay any tax on such gift received.

 

In contemplation of death of the payer

 

Any sum of money or any property is received in contemplation of death is also exempt from gift tax.

 

A gift received in contemplation of death means when men, who is ill and expects to die shortly because of his illness, give his movable property possession to another to keep as a gift in case if he will die because of that illness.

 

Such a gift may be resumed by the giver; and shall not take effect if he recovers from the illness during which it was made; nor if he survives the person to whom it was made.

 

Any local authority, trust or university etc.                

 

There is no tax liability occur when any amount received from local authority trust or university as a gift hence recipient  is not liable to pay tax on such gift.

 

Conclusion

 

Any amount received up to Rs 50000 or

 

Immovable property received (which stamp duty value is up to Rs 50000) or

 

Movable property received which FMV up to Rs 50000 in one year is not taxable in the hand of recipient. But if amount and value exceeds Rs 50000 than whole received amount and property value will be taxable.

 

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