Gifts are a common form of asset transfer, and their taxation is regulated under the Income Tax Act, 1961. The provisions of Section 56(2)(vii) and Section 56(2)(x) govern the taxation of gifts to ensure that certain gifts are brought into the tax net, while others remain exempt under specific conditions.

Key Provisions of Section 56(2)(vii) and Section 56(2)(x)

1. Section 56(2)(vii):
   • Applicable to individuals and Hindu Undivided Families (HUFs) for gifts received on or after October 1, 2009, and before April 1, 2017.
   • Governs the taxation of gifts received without consideration or for inadequate consideration.
2. Section 56(2)(x):
   • Extended the provisions of Section 56(2)(vii) to cover all persons, including companies, firms, and associations of persons (AOPs).
   • Applicable to gifts received on or after April 1, 2017.

Taxability of Gifts

Monetary Gifts

• Any sum of money received without consideration exceeding ₹50,000 in a financial year is taxable under these sections.

Immovable Property Gifts

• Taxable if received without consideration and the stamp duty value exceeds ₹50,000.
• If received for inadequate consideration (i.e., less than the stamp duty value by more than ₹50,000), the difference is taxable.

Movable Property Gifts

• Taxable if the aggregate fair market value (FMV) exceeds ₹50,000 and the property is received without consideration.
• If received for inadequate consideration, the difference between FMV and consideration is taxable.

Exemptions Under Sections 56(2)(vii) and 56(2)(x)

Certain gifts are exempt from taxation under these sections, including:

1. Gifts received from relatives, such as:
   • Spouse
   • Siblings
   • Siblings of spouse
   • Siblings of parents
   • Lineal ascendants and descendants
2. Gifts received on occasions such as:
   • Marriage of the individual
   • Under a will or inheritance
   • In contemplation of death
3. Gifts received from local authorities, trusts, or institutions registered under Section 12A or 12AA.

Deductions and Disallowances

• No deductions are allowed against income taxed under these provisions.

Examples of Taxation

1. Cash Gift:
   • Mr. A receives ₹1,00,000 as a gift from a friend. Since the amount exceeds ₹50,000, the entire ₹1,00,000 is taxable.
2. Immovable Property:
   • Ms. B receives a property with a stamp duty value of ₹5,00,000 without paying any consideration. The entire ₹5,00,000 is taxable.
   • If Ms. B pays ₹2,00,000 for the property, the taxable amount is ₹3,00,000 (stamp duty value minus consideration).
3. Exempt Gift:
   • Mr. C receives ₹1,00,000 as a wedding gift from his uncle. Since the gift is from a relative, it is exempt from tax.

Judicial Precedents

In CIT vs. Dr. R.S. Gupta, the court emphasized that the intention behind the gift provisions is to tax income-like receipts and prevent tax evasion through unaccounted gifts.

Compliance Tips for Taxpayers

1. Maintain Documentation:
   • Retain gift deeds, valuation reports, and other supporting documents.
2. Understand Exemptions:
   • Be aware of relationships and occasions that qualify for exemptions.
3. Report Gifts Accurately:
   • Disclose taxable gifts under ‘Income from Other Sources’ in the income tax return.

Conclusion

Sections 56(2)(vii) and 56(2)(x) establish clear rules for the taxation of gifts to curb misuse and ensure compliance. Taxpayers should carefully evaluate their gift transactions, understand exemptions, and maintain proper records to avoid disputes and penalties.

Additional Resources

Learn more about Tax Provisions on the official Income Tax India website.

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