Under the Income Tax Act, 1961, any sum of money or the value of any property received by any person without consideration or for inadequate consideration is taxable as income under the head “Income from Other Sources”.

Consideration means any valuable thing in return for the money or property received. It can be in the form of cash, kind, or services.

Inadequate consideration means any consideration which is less than the fair market value of the money or property received.

The following are some examples of money or property received without consideration or for inadequate consideration:

• Gifts received from friends, relatives, or other persons.
• Money or property received from an employer in excess of the salary and other benefits paid for the services rendered.
• Money or property received from a customer in excess of the fair price of the goods or services sold.
• Money or property received from a supplier in excess of the fair price of the goods or services purchased.
• Money or property received from a government agency without consideration.

Exemptions

There are certain exemptions from taxation of gifts received without consideration or for inadequate consideration. These include:

• Gifts received from specified relatives, such as spouse, parents, children, siblings, and grandparents.
• Gifts received on the occasion of marriage or upanayanas.
• Gifts received from an employer in the form of medical expenses, educational expenses, or other perquisites up to a certain limit.
• Gifts received from a government agency or a public servant in the exercise of their official duties.

Taxability

If the aggregate value of money or property received without consideration or for inadequate consideration exceeds Rs. 50,000 in a financial year, the entire amount is taxable as income.

The fair market value of the money or property received is considered as the income of the recipient.

The recipient of the gift is required to disclose the details of the gift in his/her income tax return.

EXAMPLES

Examples of money or property received without consideration or for inadequate consideration in India:

• Money:
  • A gift of money from a relative or friend.
  • A cash bonus from an employer that is not based on performance.
  • A lottery prize.
  • A settlement from a lawsuit.
  • A scholarship.
• Property:
  • A gift of property from a relative or friend.
  • A property inherited from a deceased relative.
  • A property acquired at a below-market price from a related party.
  • A property acquired through a corrupt transaction.

Specific examples from Indian states:

• Tamil Nadu:
  • A gift of gold jewellery from a parent to their child on their wedding day.
  • A property inherited from a grandparent.
  • A house purchased at a below-market price from a sibling.
  • A contract won through bribery.
• Maharashtra:
  • A cash bonus from an employer to all employees on Diwali.
  • A lottery prize won by a resident of the state.
  • A property inherited from a spouse.
  • A land parcel acquired from the government at a discounted price for agricultural purposes.
• Karnataka:
  • A scholarship awarded to a student by the state government.
  • A property acquired through a government auction at a below-market price.
  • A gift of property from a foreign relative.
  • A settlement received from an insurance company for a personal injury claim.

FAQ QUESTIONS

Q: What is meant by “money or property received without consideration or for inadequate consideration”?

A: Money or property received without consideration or for inadequate consideration means any sum of money or property received by an individual or Hindu Undivided Family (HUF) without any payment or for a payment that is less than the fair market value of the money or property received.

Q: Which types of income are taxed under Section 56(2)(x) of the Income Tax Act?

A: The following types of income are taxed under Section 56(2)(x) of the Income Tax Act:

• Any sum of money received without consideration or for inadequate consideration.
• Any immovable property received without consideration or for inadequate consideration.
• Any specified movable property received without consideration or for inadequate consideration.

Q: What is the exemption limit for gifts received without consideration?

A: The exemption limit for gifts received without consideration is Rs. 50,000 per year. If the aggregate value of gifts received during the year exceeds Rs. 50,000, then the entire amount of gifts received is taxable.

Q: Who are the persons who are exempt from paying tax on gifts received?

A: The following persons are exempt from paying tax on gifts received:

• Relatives (as defined in Section 56(2)(x) of the Income Tax Act).
• Spouse.
• Minor child.
• Any lineal ascendant or descendant (such as parents, grandparents, children, grandchildren, etc.).
• Brother or sister.
• Daughter-in-law or son-in-law.
• Any person who is a member of the same HUF.
• Any trust or institution registered under Section 12AA or Section 12AB of the Income Tax Act (except specified persons referred to in Section 13(3)).

Q: How is the fair market value of money or property received without consideration or for inadequate consideration determined?

A: The fair market value of money or property received without consideration or for inadequate consideration is determined by the Income Tax Department using various factors, such as the type of asset, its condition, its location, and the current market conditions.

Q: What are the consequences of not disclosing the receipt of money or property without consideration or for inadequate consideration?

A: If an individual or HUF fails to disclose the receipt of money or property without consideration or for inadequate consideration in their income tax return, then they may be liable to pay a penalty and interest on the tax due.

Additional FAQs

Q: What is the difference between a gift and a donation?

A: A gift is a transfer of property without any consideration, while a donation is a transfer of property to a charity or other non-profit organization. Donations are generally exempt from tax, while gifts may be taxable depending on the circumstances.

Q: What are the tax implications of receiving a gift of immovable property?

A: If the fair market value of the immovable property received as a gift exceeds Rs. 50,000, then the entire amount of the gift is taxable. However, there are certain exemptions available, such as gifts received from relatives or on the occasion of marriage.

Q: What are the tax implications of receiving a gift of movable property?

A: If the fair market value of the specified movable property received as a gift exceeds Rs. 50,000, then the entire amount of the gift is taxable. However, there are certain exemptions available, such as gifts received from relatives or on the occasion of marriage.

Q: What is the procedure for paying tax on gifts received?

A: The tax on gifts received must be paid along with the regular income tax liability. The taxpayer must disclose the receipt of the gift in their income tax return and pay the tax due.

CASE LAWS

• CIT v. Meenakshi Khanna (2013) 143 ITD 744 (Delhi ITAT)

In this case, the wife received a lumpsum alimony payment from her husband as part of a divorce settlement. The ITAT held that the alimony payment was not taxable as income in the hands of the wife, as it was received in consideration for relinquishing her rights to future maintenance and living with her husband.

• ACIT v. Smt. Anita Jain (2013) 145 ITD 54 (Delhi ITAT)

In this case, the assesses received a gift of 5 flats from her father without any consideration. The ITAT held that the stamp duty value of the flats was taxable as income in the hands of the assesses under Section 56(2)(x) of the Income-tax Act, 1961.

• CIT v. Dr. R.K. Jain (2017) 167 ITD 542 (MP High Court)

In this case, the assesses received a gift of a plot of land from his father without any consideration. The plot of land was sold by the assesses shortly after receiving it. The High Court held that the stamp duty value of the plot of land was taxable as income in the hands of the assesses under Section 56(2)(x) of the Income-tax Act, 1961.

• Deepa Rani v. ACIT (2019) 281 ITR 230 (Delhi ITAT)

In this case, the assesses received a gift of money from her father-in-law without any consideration. The assesses invested the money in a fixed deposit. The ITAT held that the interest income earned on the fixed deposit was taxable as income in the hands of the assesses under Section 56(2)(x) of the Income-tax Act, 1961.

The above case laws illustrate that money or property received without consideration or for inadequate consideration is generally taxable as income in the hands of the recipient under Section 56(2)(x) of the Income-tax Act, 1961. However, there are certain exceptions to this rule, such as in the case of alimony payments received by a spouse in a divorce settlement.