TAX WITHOUT ACTUAL INCOME: AN OVERVIEW OF SECTION 56(2)(X) By: Manjiri S. Gupta

(The author is an Article Assistant at SSRPN & CO. Nagpur. She can be approached at cassrpn@gmail.com)

Section 56(2)(x) of the Income Tax Act,1961 deals with the provisions related to gift tax. Gift received by any person or persons are taxed in the hands of recipient under the head Income from other sources.

Section 56(2)(x) would apply to specified property which is in nature of capital asset to the recipient and not stock in trade, raw material or consumable stores of any business of the recipient. Therefore, provisions of section 56(2)(x) would attract only in case of transfer of specified capital asset without consideration or for inadequate consideration.

The scope of taxability under section 56(2)(x) is briefly explained as under:

1. Any sum of money whether in cash or by cheque or any other mode, if received without consideration and the aggregate value of such sum exceeds Rs. 50,000. Then the entire amount on aggregate basis would be taxable.

2. Any immovable property received without consideration and the stamp duty value of such property exceeds Rs. 50,000. Then the stamp duty value of such property would be taxed individually.

3. Any immovable property received for a consideration less than the stamp duty value of the property and if the difference between the consideration and stamp duty value exceeds Rs. 50,000 or the amount equal to 10% of the consideration, whichever is higher would be taxable in the hands of the assessee.

4. Any property other than immovable property, received without consideration and if the aggregate fair market value of such property exceeds Rs. 50,000 than whole of the aggregate fair market value would be taxable on aggregate basis.

5. Any property other than immovable property, received for a consideration less than the fair market value and if the difference exceeds Rs. 50,000 than the difference amount shall be taxable.

Some of the exclusions in which Section 56(2)(x) will not be applicable i.e. the receipts that will not be taxed if any sum of money or any property received:

1. On the occasion of marriage of the individual;

2. From any relative;

3. By way of inheritance or under a will;

4. In case of death of the payer or donor;

5. From any local authority;

6. From any notified trust or institution or university.

Relatives in case of Individuals means:

1. Spouse of the assessee;

2. Brother or sister of the assessee;

3. Brother or sister of the spouse of the assessee;

4. Brother or sister of either of the parents of the assessee;

5. Any lineal ascendant or descendant of the assessee;

6. Any lineal ascendant or descendant of the spouse of the assessee;

7. Spouse of any of the person mentioned above.

In case of HUF any sum received without consideration and the aggregate value of which exceeds Rs. 50,000 than the whole of the aggregate value of such sum is chargeable to tax.

According to  Section 56(2)(x) property means the following capital assets they are:

1. Immovable property being building or land or both;

2. Shares and securities;

3. Jewellery;

4. Archeological collection;

5. Drawing;

6. Painting;

7. Sculptures or any work of art;

8. Bullion.

The above mentioned meaning is exhaustive, therefore any other property whether movable or immovable shall not be subject to tax under section 56(2)(x) under Income Tax Act, 1961.