Section 56(2)(x) of the Income Tax Act is a rule that deals with the taxation of gifts and other specified receipts. This section was introduced to curb the practice of receiving gifts and other assets without paying taxes. Let us break it down in simple terms.
No income tax for gifts received by individuals in these seven situations
The Income Tax Act, through Section 56(2)(x), explains when gifts are considered taxable and when they are exempt. Normally, any monetary or non-monetary gift received by an individual or a Hindu Undivided Family (HUF) that exceeds Rs. 50,000 in a year is subject to taxation. However, there are seven clear exceptions to this rule where no income tax is charged.
These include gifts received from relatives, which cover close family members like parents, siblings, and children. Another major exemption applies to gifts received on the occasion of marriage—this is the only life event for which all types of gifts, irrespective of their value, are entirely tax-free. In addition, inheritances, gifts received under a will, or those given in contemplation of death are also exempt. Other exceptions include gifts received from local authorities, registered charitable institutions, or certain specified funds.
In all these cases, while reporting requirements in the ITR must still be carefully followed, the gifts themselves do not attract any income tax liability.
What is Section 56(2)(x)?
Section 56(2)(x) of the Income Tax Act states that if you receive any money, property, or other assets without adequate consideration, it will be taxed as income. This rule applies to individuals, Hindu Undivided Families (HUFs), and firms.
In simple terms, this section taxes gifts and property transfers unless certain conditions are met. This means that if you receive something valuable and do not pay a fair price for it, you might have to pay taxes.
When does Section 56(2)(x) apply?
This section applies in the following situations:
1. Money received as gifts: If you receive cash, bank transfer, or any other form of money exceeding Rs. 50,000 without any consideration, then it is taxable under this section.
2. Immovable property: If you receive immovable property (like land or buildings) without consideration and its stamp duty value exceeds Rs. 50,000, it will be taxed.
3. Movable property: If you receive movable property (like jewellery, shares, or paintings) without consideration and its fair market value exceeds Rs. 50,000, it will be taxed.
Additional read: Sale Under the Transfer of Property Act
Exceptions to Section 56(2)(x)
There are some exceptions where Section 56(2)(x) does not apply:
1. Relatives: If you receive gifts or property from a relative, they are not taxable under this section. Relatives include parents, siblings, spouse, and lineal descendants.
2. Occasions: Gifts received on the occasion of marriage are not taxed.
3. Inheritance: Assets received through inheritance or will are not taxed.
4. Trusts: Assets received from a trust or institution registered under Section 12A or 12AA are not taxed.
How does Section 56(2)(x) affect you?
If you receive any gifts or assets that fall under Section 56(2)(x), you need to report them as income in your tax return. This means you might have to pay more taxes. It is important to keep records of all such transactions to avoid any issues with the tax authorities.
Let us say you receive a piece of land from a friend, and the stamp duty value of the land is Rs. 1,00,000. Since you did not pay anything for the land, and its value exceeds Rs. 50,000, this will be considered as income under Section 56(2)(x). You will need to report this in your tax return and pay taxes on it.
How to calculate the taxable value of a gift
To calculate the taxable amount of a gift, one must first identify the type of asset received and its value. The Income Tax Act lays down specific rules that determine whether a gift will be taxed and how its value is to be calculated. Broadly, if the value of a gift (cash, property, or any specified asset) exceeds Rs. 50,000, tax is applicable.
Here’s how it is computed:
Type of gift |
When tax applies |
Taxable value |
Cash, cheque, or bank transfer |
If total exceeds Rs. 50,000 |
The entire amount received |
Immovable property (land/building) without consideration |
Stamp duty value exceeds Rs. 50,000 |
Stamp duty value of the property |
Immovable property with inadequate consideration |
If stamp duty value exceeds purchase price by more than Rs. 50,000 |
Difference between stamp duty value and purchase price |
Movable assets like jewellery, shares, paintings, etc., without consideration |
Fair market value exceeds Rs. 50,000 |
Fair market value of asset |
Movable assets with inadequate consideration |
If fair market value exceeds purchase price by more than Rs. 50,000 |
Difference between fair market value and purchase price |
Example: If jewellery worth Rs. 2 lakh is gifted but was originally purchased for Rs. 1 lakh, then Rs. 1 lakh is taxable.
Understanding these calculations helps you make informed decisions about property transactions and ensures compliance with tax regulations. Whether you are buying your first home or investing in real estate, proper financial planning can help you avoid unnecessary tax complications while achieving your property goals. Check your eligibility for a home loan from Bajaj Finserv to make your property purchase smoother. You may already be eligible, find out by entering your mobile number and OTP.
How to declare tax on gifts in India
Gift tax in India is categorised under direct taxation, and the responsibility to pay lies with the receiver of the gift. The value of the gift must be declared under the head “Income from Other Sources” when filing the Income Tax Return (ITR). Once the value is included in the total income, the tax payable is computed as per the applicable income tax slab rates of the individual or HUF. This means the higher the receiver’s overall income, the higher the tax impact on the taxable gift. Proper and timely reporting is essential to avoid penalties or interest.
Tax on gifts received from friends
When it comes to friends, the Income Tax Act does not extend any blanket exemption. Since friends are not categorised as “relatives” under Section 56(2)(x), all gifts received from them, whether cash, property, or assets, may attract taxation. However, the rule of Rs. 50,000 still applies. If the total value of all gifts received from friends in one financial year is less than Rs. 50,000, no tax liability arises. Once the threshold is crossed, the entire amount becomes taxable, not just the excess portion. Thus, it is important to monitor the total annual value of gifts received from friends.
Tax on gifts received from relatives
Gifts from relatives are always exempt from tax, regardless of their value. The Income Tax Act provides a specific list of relations considered “relatives” for this purpose. These include:
- Spouse of the individual
- Brothers or sisters of the individual and their spouses
- Brothers or sisters of the spouse of the individual
- Brothers or sisters of either parent of the individual
- Any lineal ascendant or descendant of the individual
- Any lineal ascendant or descendant of the spouse or their spouse
- In the case of HUF, any member thereof
All such gifts are tax-free.
Tax on gifts received in marriage
Marriage enjoys a special position under Indian tax laws when it comes to gifts. Any gift received by an individual (whether cash, jewellery, property, or other assets) on the occasion of marriage is entirely exempt from taxation. This exemption is absolute and not subject to any monetary limit. However, this benefit is limited strictly to marriage ceremonies. Gifts received on birthdays, anniversaries, or other personal milestones do not enjoy the same tax relief and will be taxed if they meet the criteria laid down in Section 56(2)(x). Thus, marriage is the only social occasion that provides this tax advantage.
Many couples receive cash gifts during marriage and often use these funds towards purchasing their first home together. If you are planning to buy property after marriage, combining your gift money with a home loan can help you secure your dream home without straining your finances. Check your eligibility for a home loan from Bajaj Finserv to turn your homeownership dreams into reality. You may already be eligible, find out by entering your mobile number and OTP.
Smart financial planning to navigate Section 56(2)(x)
Understanding Section 56(2)(x) can help you plan better when it comes to receiving gifts or purchasing property. If you are thinking of buying a property or receiving an asset, ensure it complies with fair market value rules to avoid unexpected tax liabilities.
One way to make the process easier is by using a home loan. For example, if you are planning to buy a house, using a home loan ensures that the transaction is at a fair value. This avoids tax complications related to inadequate consideration.
When purchasing property at fair market value, securing the right financing becomes crucial for your overall financial planning. Bajaj Finserv offers home loans with competitive interest rates starting from 7.45%* p.a and flexible repayment options up 32 years. Check your eligibility for a Bajaj Housing Finance Home Loan today. You may already be eligible, find out by entering your mobile number and OTP.
Understanding Section 56(2)(x) is essential for proper tax planning and compliance. By knowing when gifts are taxable and when they are exempt, you can make better financial decisions and avoid unexpected tax liabilities. Whether you are receiving gifts or planning major purchases like property, being aware of these tax implications helps you navigate your financial journey more effectively. When you are ready to invest in property, having the right financing partner makes all the difference in ensuring smooth transactions at fair market values. Check your loan offers with Bajaj Finserv for competitive rates and hassle-free processing. You may already be eligible, find out by entering your mobile number and OTP.
