Section 56(2)(x) - Income Tax

The Finance Act, 2017 introduced a new clause (x) in Section 56(2) of the

Income Tax Act to provide that receipt of the sum of money or the property received by a person without any consideration or upon crossing a particular threshold would be liable to tax in the hands of the receiver under the head ‘Income from other sources’. The taxation on gifts that are received by an Individual/ HUF is governed by the provisions of clause (x) in Section 56(2) of the Income Tax Act. Let us look in detail about Section 56(2)(x) in this article.

Applicability of Section 56(2)(x)

Under the existing provision of section 56(2)(vii), any sum of money or any property received without any consideration by any

Individuals or HUF is chargeable to income tax. Section 56(2)(vii a) was applicable only to the Firm and Closely held company. Whereas, 56(2)(x) is applicable to all kinds of the assessee. Clause(x) is included in section 56(2) to provide the following receipts:

Any sum of money that is received without consideration, in aggregate exceeding Rs.50,000 during the financial year
Any immovable property without any consideration, the stamp duty value of which exceeds Rs.50,000
Any immovable property with the consideration which is less than stamp duty value by an amount exceeding Rs.50,000
Any movable property (as defined and specified) without consideration where aggregate fair market value whereof exceeds Rs.50,000
Any movable property (as defined and specified) for consideration which is less than fair market value by an amount exceeding Rs.50,000

Features of Section 56(2)(x)

The receipts that are provided for any sum of money or immovable property or movable property that is exceeding the threshold limit of 50,000 are taxable.
The amount that is liable to tax would be as follows:

Item received	Threshold limit up to which not taxable	Amount liable to tax
Sum of money without consideration	If such sums of money received during the previous year in question do not exceed Rs.50000 in the aggregate	If the threshold of Rs.50,000 exceeded, the entire amount received (and not just the amount in excess of Rs.50000) is liable to tax
Immovable property received without consideration	Stamp duty value does not exceed Rs.50000	Stamp duty value of property received (If stamp duty value of the property received that exceeds Rs.50,000)
Immovable property received for the consideration that is less than stamp duty value	Difference between stamp duty value and consideration does not exceed Rs.50000	The entire difference between SDV and consideration (if the difference exceeds 50000)
Movable property received without consideration	The aggregate FMV of movable property received during the financial year does not exceed Rs.50000	If the threshold of 50,000 exceeded, entire aggregate FMV(and not just the amount in excess of Rs.50000) is liable to tax
Movable property received for consideration that is less than their FMV	Difference between aggregate FMV and consideration does not exceed Rs.50000	If the threshold of Rs.50,000 exceeded, then the entire difference is taxable and not just the difference in excess of Rs.50000

Exceptions to Section 56(2)(x)

Provision of 56(2)(x) would not apply to any sum of money or any property received from any relative –

In the case of an individual

spouse of the individual
Brother or sister of the individual
Any inherent ascendant or descendant of the individual
Brother or sister of the parents of the individual
Any inherent ascendant or descendant of the individual
Brother/ sister of the spouse of the individual.
Any inherent ascendant or descendant of the spouse of the individual.

In case of a Hindu undivided family

Any member thereof

Provision of 56(2)(x) would not be applicable to any sum of money or any property that is received under the following circumstances:

On the occasion of an individual's marriage
By a will or by way of inheritance
In the case of death of the payer or donor, as the case may be
From any local authority that as defined in the Explanation to clause (20) of section 10
From any fund/ foundation/ other educational institution/ university/ hospital/ other medical institution/ any trust or institution referred to in under section 10
From any trust or institution that is registered under section 12A or section 12AA
By any trust or fund or any institution or university or other educational institution or hospital or any other medical institution referred to in sub-clause (iv)/ (v)/ (vi) or sub-clause (via) of clause (23C) of section 10
From any individual by a trust created solely for the benefit of relative of the individual.

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Frequently Asked Questions

Common questions about Section 56(2)(x).

Section 56(2)(x) is a provision that was introduced in the Income Tax Act to tax certain receipts of money or property without consideration or with inadequate consideration. It applies to all assessees, including individuals, HUFs, firms, companies, and others.

Section 56(2)(x) covers the following receipts: any sum of money without consideration exceeding Rs. 50,000 in a financial year, any immovable property without consideration or with inadequate consideration exceeding Rs. 50,000, and any movable property without consideration or with inadequate consideration exceeding Rs. 50,000.

The taxable amount under Section 56(2)(x) depends on the type of receipt and the threshold limit. For instance, if the sum of money received without consideration exceeds Rs. 50,000, the entire amount is taxable, not just the excess over Rs. 50,000.

Yes, Section 56(2)(x) provides exceptions for receipts from relatives, on the occasion of marriage, through inheritance or will, from certain specified entities like trusts, universities, hospitals, and local authorities, and receipts by trusts for the benefit of relatives.

No, Section 56(2)(x) does not apply to gifts received from relatives as defined in the Income Tax Act. Relatives include spouse, siblings, ancestors, and descendants, among others.

Yes, the stamp duty value of the immovable property is a crucial factor in determining the taxability under Section 56(2)(x). If the stamp duty value exceeds the consideration by more than Rs. 50,000, the difference is taxable.

The fair market value of movable property is determined according to the rules prescribed by the Income Tax Act. If the fair market value exceeds the consideration by more than Rs. 50,000, the difference is taxable.

No, Section 56(2)(x) applies to specific types of movable property as defined and specified in the Income Tax Act. The definition of movable property may vary based on the context and specific rules.

Yes, Section 56(2)(x) has a minimum threshold of Rs. 50,000 for the aggregate receipts of money or property without consideration or with inadequate consideration during a financial year.

The income taxable under Section 56(2)(x) is treated as 'Income from other sources' and is subject to the applicable tax rates based on the assessee's income slab and tax status.