Income Tax Dept warns public against cash dealings of Rs 2 lakh or more saying that the receiver of the amount will have to cough up an equal amount as penalty.

WHETHER GIFT RECEIVED IS TAXABLE


Chargeability of Gifts in hands of Individual/ HUF under section 56 of Income Tax Act

Introduction:

Taxability of Gifts is an important subject matter as the gift transfers are used to avoid the tax liability from ancient times. Gift tax act was introduced in India in the year 1958 and was deleted vide Finance Act 1998 effective from 01 Oct, 1998 and with the introduction of section 56(2)(v) w. e. f. 01.09.2004 the gifts are chargeable under the Income-tax Act itself in the hands of the recipients depending upon charging conditions as provided therein.

As per Oxford Dictionary gift is anything given willingly to someone without payment. So, in general terms gift is the transfer of money and property made voluntarily and without consideration, by the donor to the donee and accepted by or on behalf of donee. With the passage of time no. of amendments has been made in the various provisions of the section 56(2) by enlarging the scope the taxability of the gifts received by the donee. Applicability of provisions of Act to a Gift whether taxable or not can be understood with from the dates of applicability.


Provisions as applicable to taxability of Gifts as per income tax Act from 01.09.2004 to 31.03.2006:-

A gift is chargeable to tax under section 56 (2) (v) if it satisfies the following conditions:

A. It is received by an individual or a HUF.

B. If it is received during the period from 01-09-2004 to 01-04-2006.

C. The monetary gift exceeds Rs 25000/-.

D. The gift does not fall in the exempted category.

The Exempted Category includes Gift received

i) from any relative

ii) on the occasion of marriage of the individual

iii) under a will or by the way of inheritance

iv) in contemplation of death of the donor

v) from any local authority as per clause 20 of Section 10 i.e. Panchayats, Cantonment Board, Municipality and Municipal Corporation

vi) from any fund or foundation or university or other educational institution or hospital or medical institution or ant trust or institution referred to in clause 23C of section 10

vii) from any trust or institution registered under section 12AA

Provisions as applicable to taxability of Gifts as per income tax Act from 01.04.2006 to 30.09.2009:-

A gift is chargeable to tax under section 56 (2) (vi) if it satisfies the following conditions:

A. It is received by an individual or a HUF.

B. If it is received during the period from 01-04-2006 to 30-09-2009.

C. The aggregate value of monetary gift exceeds Rs 50000/-.

D. The gift does not fall in the exempted category.

The Exempted Category includes Gift received

i) from any relative

ii) on the occasion of marriage of the individual

iii) under a will or by the way of inheritance

iv) in contemplation of death of the donor

v) from any local authority as per clause 20 of Section 10 i.e. Panchayats, Cantonment Board, Municipality and Municipal Corporation

vi) from any fund or foundation or university or other educational institution or hospital or medical institution or ant trust or institution referred to in clause 23C of section 10

vii) from any trust or institution registered under section 12AA

Provisions as applicable to taxability of Gifts as per income tax Act from 01.10.2009 onwards:-

Prior to 01.10.2009 only the gifts received in the sum of money were chargeable to tax under Income Tax Act, However from 01.10.2009 gifts received in kind are also charged to tax as per Income Tax Provisions

A gift is chargeable to tax under section 56 (2) (vii) if it satisfies the following conditions:

A. It is received by an individual or a HUF.

B. If it is received on or from 01-10-2009 onwards.

C. The gift does not fall in the exempted category.

The Exempted Category includes Gift received

i) from any relative.

ii) on the occasion of marriage of the individual.

iii) under a will or by the way of inheritance.

iv) in contemplation of death of the donor.

v) from any local authority as per clause 20 of Section 10 i.e. Panchayats, Cantonment Board, Municipality and Municipal Corporation

vi) from any fund or foundation or university or other educational institution or hospital or medical institution or ant trust or institution referred to in clause 23C of section 10.

vii) from any trust or institution registered under section 12AA.

D. The gift falls in any of the following categories:

1. Gift of Money:

If aggregate amount of sum of money received as gift exceeds Rs.50,000/-, the whole of such aggregate value will be chargeable to tax.

2. Gift of Immovable property:

If any gift of immovable property whose stamp duty value exceeds Rs. 50,000/-, stamp duty value will be chargeable to tax in every such transaction.

3. Gift of Movable property

i) Without Consideration: If aggregate fair market value of gifted movable property received without consideration exceeds Rs. 50,000/-, the whole of aggregate fair market value of movable property will be chargeable to tax.

ii) With inadequate consideration: If gift of movable property is received for a consideration which is less than the aggregate fair market value of the property, the whole of aggregate fair market value of such property as exceeds such consideration shall be taxable.

Some important defination/terms:

1. Relative here means:-

In case of Individual

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)

In case of HUF

i) Any member thereof(Inserted in the list of Relatives w.e.f. 01/10/2009).

It is important to point it out over here that any income received by the HUF from any property received from its members without consideration is taxable in the hands of the member [(as per provisions of section 64(2)] throwing its property to the common hotch- potch of the HUF

2. Moveable Property here means:

i) shares and securities

ii) jewellery

iii) archaeological collections

iv) drawings

v) paintings

vi) sculptures

vii) any work of art

viii) bullion

3. Immoveable Property: The Term includes land, building or both.

4. Stamp Duty Value: The value adopted by any authority of government for the purpose of payment of stamp duty in respect of an immovable property

5. Jewellery: The term includes

i) Ornaments made of gold, silver, platinum or any other precious metals or alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel;

ii) Precious or semi-precious stones, whether or not set in any furniture, utensils or other article or worked or sewn into any wearing apparel.
 
Contributed By :


Ms. Lipsy Garg(Pursuing CA Final)
Article With Shiv Jindal & Co.
Under the Guidance of CA. Vikram Jindal, Ludhiana

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3 comments:

  1. Please clarify whether gift received by HUF from Kartsa's father/mother is taxable in the hands of HUF.

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    Replies
    1. Only gifts received from members are taxfree....however Karta's parent can gift anything to their son n the same could be gifted To Huf

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  2. Yes, it is possible but it needs proper planning otherwise you may dragged into controversy of diversion by the AO

    ReplyDelete