As you are aware that if a person receives any Cash or property without consideration ( as a gift) then same will be taxable in the hand of persons receiving the gift under head "Income from other sources", in the same year in which he receives gift.
Taxability of gift received by any person, i.e., sum of money or property received without consideration or a case in which the property is acquired for inadequate consideration.
From the taxation point of view, gift can be classified as follows
- Any sum of money received without consideration; it can be termed as a 'monetary gift'.
- Immovable properties received without consideration; it can be termed as 'gift of immovable property'.
- Immovable properties acquired at a reduced price (i.e., for inadequate consideration), it can be termed as 'immovable property received for less than its stamp duty value'.
- Specified movable properties received without consideration, it can be termed as 'gift of movable property'.
- Specified movable properties received at a reduced price (i.e., for inadequate consideration), it can be termed as 'movable property received for less than its fair market value'.
IN THE FOLLOWING SPECIFIC CIRCUMSTANCES, SUM OF MONEY OR MOVABLE/IMMOVABLE PROPERTY RECEIVED WILL NOT BE CHARGED TO TAX
a) In case of an Individual - Received from relatives.
Relative for this purpose means-
i) Spouse,
ii) Brother or sister,
iii) Brother or sister of the spouse,
iv) Brother or sister of either of the parents,
v) Any lineal ascendant or descendent,
vi) Any lineal ascendant or descendent of the spouse, Spouse of the persons referred to above.
b) In case of HUF - Received from any member thereof,
c) Received on the occasion of the marriage of the individual,
d) Received under will/ by way of inheritance,
e) Received in contemplation of death of the payer or donor,
f) Received from a local authority [as defined in Explanation to section 10(20)],
g) Received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C),
h) Received from a trust or institution registered under section 12AA, or section 12AB [words in italics Inserted by Finance Act, 2020]
i) Share received as a consequence of demerger or amalgamation of a company under clause (vid) or clause (vii)of section 47, respectively and
j) Share received as a consequence of business reorganization of a co-operative bank under section 47(vicb).
TAX TREATMENT OF MONETARY GIFT
Sum of money received without consideration in non-specific circumstances and the aggregate value of such sum of money received during the year exceeds Rs. 50,000, the entire value shall be chargeable to Income tax.
PLEASE NOTE THAT
Marriage of the individual is the only occasion when monetary gift received by him will not be charged to tax Gift. Apart from marriage there is no other occasion when monetary gift received by an individual is not charged to tax.
Hence, monetary gift received on occasions like birthday, anniversaries, etc. will be charged to tax. Friend is not a 'relative' as defined in the above list and hence, gift received from friends will be charged to tax (if other criteria of taxing gift are satisfied).
Monetary gifts received from abroad If the aggregate value of monetary gift received during the year by an individual or HUF exceeds Rs. 50,000 and the gifts are not covered under the exceptions discussed in earlier part, then gifts whether received from India or abroad will be charged to tax.
Once the aggregate value of gifts received during the year exceeds Rs. 50,000 then all gifts are charged to tax Sum of money received without consideration by an individual or HUF is chargeable to tax if the aggregate value of such sum received during the year exceeds Rs. 50,000.
The important point to be noted in this regard is the "aggregate value of such sum received during the year".
The taxability of the gift is determined on the basis of the aggregate value of gift received during the year and not on the basis of individual gift. Hence, if the aggregate value of gifts received during the year exceeds Rs. 50,000, then total value of all such gifts received during the year will be charged to tax (i.e., the total amount of gift and not the amount in excess of Rs. 50,000).
Illustration
Mr. Kumar received the following gifts during the financial year 2022-23:
- Rs. 1,84,000 from his friend residing in Canada.
- Rs. 25,200 from his elder brother residing in Delhi.
- Rs. 84,000 from his friend residing in Delhi (received on the occasion of birthday of Mr. Kumar).
What will be the tax treatment of the above items in the hands of Mr. Kumar?
PLEASE NOTE THAT: Sum of money received without consideration (i.e., gift) by an Individual or a HUF from any person other than relative (meaning of relative is already discussed earlier) and otherwise than on prescribed occasions (as discussed earlier) is charged to tax, if the aggregate amount of such gift received during the year exceeds Rs. 50,000.
Considering these provisions, the tax treatment of gifts in the hands of Mr. Kumar will be as follows:
- Rs. 1,84,000 received from his friend will be fully taxed because friend is not covered in the definition of 'relative'.
- Rs. 25,200 received from elder brother will not be charged to tax because elder brother is covered in the definition of 'relative'.
- Birthday is not covered in the list of prescribed occasion on which gift is not charged to tax, hence Rs.84,000 received on the occasion of birthday will be fully taxed.
TAX TREATMENT OF IMMOVABLE PROPERTY RECEIVED AS GIFT
The following conditions need to be satisfied, then immovable property received without consideration in non-specific circumstances will be charged to tax -
- Immovable property, being land or building or both, is received,
- The immovable property is a capital asset within the meaning of section 2(14),
- The stamp duty value of such immovable property received without consideration exceeds Rs. 50,000.
CIRCUMSTANCES IN WHICH GIFT OF IMMOVABLE PROPERTY NOT CHARGEABLE TO TAX
When immovable property received by an individual or HUF without consideration (i.e., by way of gift) is not charged to tax in following cases, gift of immovable property will not be charged to tax.
1)Property received from relatives. Relative for this purpose means:
i). In case of an Individual
a) Spouse of the individual.
b) Brother orsister of the individual.
c) Brother orsister of the spouse of the individual.
d) Brother or sister of either of the parents of the individual.
e) Any lineal ascendant or descendent of the individual.
f) Any lineal ascendant or descendent of the spouse of the individual.
g) Spouse of the persons referred to in (b) to (f).
2) In case of HUF, any member thereof.
3) Property received on the occasion of the marriage of the individual.
4) Property received under will/ by way of inheritance.
5) Property received in contemplation of death of the donor.
6) Property received from a local authority [as defined in Explanation to section 10(20) of the Income-tax Act].
7) Property received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C) [w.e.f. AY 2023-24, this exemption is not available if property is received by a specified person referred to in section 13(3)].
8) Property received from a trust or institution registered under section 12AA or section 12AB [w.e.f. AY 2023-24, this exemption is not available if property is received by a specified person referred to in section 13(3)].
The meaning of Property has also been defined and Property means:-
- Immovable Property being land or Building or both
- Shares and Securities
- Jewellery
- Archaeological Collections
- Drawings
- Paintings
- Sculptures
- Any other work of Art
TAXABILITY IN A CASE WHERE AN IMMOVABLE PROPERTY IS ACQUIRED FOR LESS THAN ITS STAMP DUTY VALUE
Apart from taxing immovable property received without consideration, i.e., received as gift, the Income-tax act has also designed provisions for taxing immovable property is acquired for less than its stamp duty value.
If the following conditions are satisfied, then immovable property received by any person, in non-specific circumstances,for less than its stamp duty value will be charged to tax - Any immovable property is acquired by any person, the immovable property is a 'capital asset' within the meaning of section 2(14) of the act for such person and such property is acquired for a consideration but the consideration is less than the stamp duty value and the difference
exceeds higher of Rs. 50,000 and 10% of the consideration.
In above case the excess of stamp duty value over the purchase price of the property will be treated as income of the purchaser.
Increase in safe harbour limit of 10% for home buyers and real estate developers selling such residential units [Amendment vide Finance Act, 2021]:
To encourage the real estate developer, in case of residential units, the safe harbour limit is increased from 10% to20% subject to fulfilling the following conditions, i.e.:
- The transfer of residential unit takes place during the period from 12 November 2020 to 30 June 2021.
- The transfer is by way of first-time allotment of the residential unit to any person.
- The consideration received or accruing as a result of such transfer does not exceed INR 2 crore.
An explanation has been inserted to define the term 'residential unit'. Consequential amendment is also made inSection 56(2)(x) to increase the safe harbour limit from 10% to 20% whereby, circle rate shall be deemed as sale/purchase consideration only if the variation between the agreement value and the circle rate is more than 20%.
TAX TREATMENT OF MOVABLE PROPERTY RECEIVED AS GIFT
If the following conditions are satisfied, then value of prescribed movable property (meaning discussed in later part)received by any person in nonspecific circumstances will be charged to tax -
- Prescribed movable property is received without consideration (i.e., received as gift),
- The aggregate fair market value of such property received by the taxpayer during the year exceeds Rs. 50,000.
In above case, the fair market value of the prescribed movable property will be treated as income of the receiver.
Prescribed movable property means shares/securities, jewellery, archaeological collections, drawings, paintings,sculptures or any work of art and bullion, being capital asset of the taxpayer.
Considering the above definition, nothing will be charged to tax in respect of gift of any item being a movable property other than covered in the above definition, e.g., Nothing will be charged to tax in respect of a television set received as gift, because a television set is not covered in the definition of prescribed movable property.
If the aggregate fair market value of prescribed movable property received by an individual or HUF without consideration during the year exceeds Rs. 50,000, then the total value of such properties received during the year without consideration will be charged to tax.
Tax Treatment when Movable Property is acquired for less than its Fair Market ValueApart from taxing movable property received without consideration, i.e., received as gift, the Income-tax act has also designed provisions for taxing movable property if acquired for less than its Fair Market Value.
If following conditions are satisfied, then movable property acquired by any person, in non-specific circumstances, for less than its fair market value will be charged to tax.
Any movable property is acquired by any person,the movable property is a 'capital asset' within the meaning of section 2(14) of the Act for such person and such property is acquired for a consideration, but the consideration is less than fair market value and the difference exceeds Rs. 50,000.
In above case the excess of fair market value over the purchase price of the property will be treated as income of the purchaser.
TAXATION OF SHARES AND SECURITIES RECEIVED
"Shares" will cover both equity shares and preference shares. The term "securities" have been defined by rule 11U(h)of the Income-tax Rules, 1962 which states that "Securities" shall have the same meaning as assigned to it in clause(h) of the Securities contracts (Regulations) Act, 1956. The said Section 2(h) defines securities as under
"SECURITIES" INCLUDE
(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate.
(ia) derivative.
(ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes.
(ic)security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
(id) units or any other such instrument issued to the investors under any mutual fund scheme;]
(ii) Government securities; (iia) such other instruments as may be declared by the Central Government to be securities; and (iii) rights or interest in securities.
ALLOTMENT OF BONUS SHARES BY A COMPANY TO ITS SHAREHOLDERS WILL ATTRACT TAX IN SHAREHOLDERS' HANDS UNDER SECTION 56(2)(VII)(C)
In CIT V Dalmia Investment Co. Ltd. (1964) 52 ITR 567(SC), the court held that bonus shares are received by shareholders without payment and not without consideration, thus Section is not attracted.
Shares allotment on right issue basis - In Khoday Distilleries Ltd. V CIT (2009) the Supreme Court held that allotment of shares on right issue basis by the company involves no transfer and therefore is not a gift.
DISCLAIMER: The article presented here is only for sharing information with the readers. The views are personal. In case of necessity do consult with professionals.
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