Gift in simple terms means receiving anything without consideration.
This is a very common thing where people receive gifts from relatives and non relatives on various occasions like birthday, marriage, etc and sometimes from relatives even without any occasion.
However, Income tax act has a very different take on gift and has covered different types of gift under taxability by virtue of section 56.
Earlier gift was only charged to income for individual and HUF under section 56(2)(v), (vi) and (vii) but later all types of person receiving gift were covered under income tax provision by way of section 56(2)(x) which is as under:
“where any person receives, in any previous year, from any person or persons on or after the 1st day of April, 2017,—
(a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;
(b) any immovable property,—
(A) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;
(B) for a consideration, the stamp duty value of such property as exceeds such consideration, if the amount of such excess is more than the higher of the following amounts, namely:—
(i) the amount of fifty thousand rupees; and
(ii) the amount equal to ten (substituted for five from 01.04.2021) per cent of the consideration:
Provided that where the date of agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of agreement may be taken for the purposes of this sub-clause :
Provided further that the provisions of the first proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account [or through such other electronic mode as may be prescribed], on or before the date of agreement for transfer of such immovable property:
Provided also that where the stamp duty value of immovable property is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of this sub-clause as they apply for valuation of capital asset under those sections;
(c) any property, other than immovable property,—
(A) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;
(B) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration :
Provided that this clause shall not apply to any sum of money or any property received—
(I) from any relative; or
(II) on the occasion of the marriage of the individual; or
(III) under a will or by way of inheritance; or
(IV) in contemplation of death of the payer or donor, as the case may be; or
(V) from any local authority as defined in the Explanation to clause (20) of section 10; or
(VI) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or
(VII) from or by any trust or institution registered under [section 12A or section 12AA]; or
(VIII) by any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10; or
(IX) by way of transaction not regarded as transfer under clause (i) or clause (iv) or clause (v) or clause (vi) or clause (via) or clause (viaa) or clause (vib) or clause (vic) or clause (vica) or clause (vicb) or clause (vid) or clause (vii) of section 47; or
(X) from an individual by a trust created or established solely for the benefit of relative of the individual;
[(XI) from such class of persons and subject to such conditions, as may be prescribed.]
Explanation.—For the purposes of this clause, the expressions “assessable”, “fair market value”, “jewellery”, “property”, “relative” and “stamp duty value” shall have the same meanings as respectively assigned to them in the Explanation to clause (vii).”
Now there various exception to section 56(2)(x) wherein these transactions won’t be liable to tax as income from other sources even if they are received without consideration or for less consideration.
This covers gift received from relative, gift on marriage, under a will etc. Now the question which arise is how to show such receipt in Income tax return because many a times people receive huge gift from their parents, grandparents as a gift to purchase house, start a business or out of natural love and affection.
When such big amount hits their bank account they are afraid that Income tax department might ask questions and hence they find ways to disclose such receipt in their income tax return.
So the question is where to show such gift in Income tax return?
We are clear that gift received from relatives or from person or on occasion mentioned in 56(2)(x) are not liable to tax and also not covered under Income from other sources. Hence one cannot show it under the head or schedule of income from other sources.
Hence many people tends to show it under exempt income schedule which practically is not incorrect as the income is not liable to tax but legally such receipt is not exempt income as same is not covered under section 10 and all income which is not liable to tax is not exempt income.
Gift is just a capital receipt which is not required to be disclosed in Income tax return like amount received on sale of rural agricultural land or amount received on sale of personal asset which are not covered under the definition of capital asset like amount received on sale of personal car.
As we don’t show such amount in Income tax return likewise we are not required to show such gift received which is not liable to tax in our Income tax return.
Thus, from the above discussion it is clear that one is not required to show receipt of gift in Income tax return which is not liable to tax.