TAXABILITY OF GIFT SECTION 56

Get More Updates From Caultimates.com Join with us : http://facebook.com/groups/caultimates Taxability of Gift 91 TAXABILITY OF GIFT SECTION 56 TAXABILITY OF GIFT SECTION 56(2)(vii) Gift received by individual or HUF shall be taxable and the gifts shall be divided into 3 parts. 1. Gift of sum of money 2. Gift of immovable property 3. Gift of any property other than immovable property Taxability is as given below: 1. Gift of sum of money If any individual or HUF has received any sum of money from one or more persons without consideration and the aggregate value of all such gifts received during the year exceeds fifty thousand rupees, the whole of the aggregate value of such sum shall be taxable under the head Other Sources but if the aggregate value is upto `50,000, entire amount shall be exempt from income tax. E.g. Mr. X has received 3 gifts of `15,000 each from his 3 friends, entire amount of `45,000 is exempt from income tax but if he has received 3 gifts of `20,000 each, entire amount of `60,000 shall be taxable. 2. Gift of immovable property If any individual or HUF has received any immovable property without consideration, it will be exempt if stamp duty value is upto `50,000 but if the stamp duty value exceeds fifty thousand rupees, entire stamp duty value shall be taxable under the head Other Sources. Value of individual immovable property shall be taken into consideration instead of aggregate value of all such properties. (If person is selling immovable property, it Conveyance Deed shall be prepared in the office of Registrar and some tax has to be paid to the State Government for transferring the property and it is called stamp duty and the value on which such duty is charged is called stamp duty value. A person may not disclose the right value hence the value is determined by State Government.) If immovable property has been received for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, in such cases taxable amount shall be the stamp duty value of such property as exceeds such consideration. E.g. Mr. X purchased immovable property for `3,00,000 but stamp duty value is `5,00,000, taxable amount shall be `2,00,000 The above provision shall not apply if the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same and in such cases, the stamp duty value on the date of the agreement shall be taken into consideration but part of consideration should have been paid in any manner other than cash on or before the date of agreement. E.g. Mr. X has entered into agreement with a builder ABC Limited on 01.07.2011 for purchase of one building for `20,00,000 but stamp duty value was `27,00,000 and advance of `3,00,000 was given by cheque but property was

Taxability of Gift 92 transferred in his name on 01.07.2013 and on that date stamp duty value was `35,00,000, in this case amount of gift shall be `8,00,000 (35,00,000 27,00,000). 3. Gift of any property other than immovable property Any property, other than immovable property, (i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (ii) 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 : If the stamp duty value of immovable property is disputed by the assessee, the Assessing Officer may refer the valuation of such property to a Valuation Officer. In such a case, the provisions of section 50C and section 155(15) shall, as far as may be, apply for determining the value of such property. The gift is exempt in the following cases i.e. if gift has been received (a) from any relative; or (b) on the occasion of the marriage of the individual; or (c) under a will or by way of inheritance; or (d) in contemplation of death of the payer or donor, as the case may be; or (e) from any local authority as defined in the Explanation to clause (20) of section 10; or (f) 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 (g) from any trust or institution registered under section 12AA. - "PROPERTY" means the following capital asset of the assessee, namely: (i) immovable property being land or building or both; (ii) shares and securities; (iii) jewellery; (iv) archaeological collections; (v) drawings; (vi) paintings; (vii) sculptures; (viii) any work of art; or (ix) bullion; If individual or HUF has received gift of any other property, it will not be taxable e.g. motor car or plant and machinery or a watch or a mobile phone etc. - "Relative" means, (i) in case of an individual (a) spouse of the individual; (b) brother or sister of the individual; (c) brother or sister of the spouse of the individual; (d) brother or sister of either of the parents of the individual; (e) any lineal ascendant or descendant of the individual; (f) any lineal ascendant or descendant of the spouse of the individual; (g) spouse of the person referred to in items (b) to (f); and (ii) in case of a Hindu undivided family, (a) any member thereof;

Taxability of Gift 93 If any individual or HUF has received gift of any property other than immovable property without consideration and the aggregate fair market value of such properties received during a particular year exceeds `50,000, it will be taxable under the head Other Sources but if aggregate value of all such properties is upto `50,000, it will be exempt from income tax. If the consideration is less than the aggregate fair market value of such properties by an amount exceeding `50,000, aggregate fair market value as exceeds such consideration shall be taxable under the head Other Sources. The table below summarises the scheme of taxability of gifts Nature of asset Particulars Taxable value 1 Money Without The whole amount if the same exceeds ` 50,000 Consideration 2 Immovable property Without Consideration The stamp duty value of the property, if it exceeds `50,000 3 Immovable property Inadequate Consideration The difference between the stamp duty value of the property and the consideration, if such difference exceeds `50,000 4 Movable property Without The aggregate fair market value of the property, if Consideration 5 Movable property Inadequate Consideration it exceeds `50,000 The difference between the aggregate fair market value and the consideration, if such difference exceeds `50,000 Illustration 1 Mr. A, a dealer in shares, received the following without consideration during the P.Y.2013-14 from his friend Mr. B, - (1) Cash gift of ` 75,000 on his anniversary, 15 th April, 2013. (2) Bullion, the fair market value of which was ` 60,000, on his birthday, 19 th June, 2013. (3) A plot of land at Faridabad on 1 st July, 2013, the stamp value of which is ` 5 lakh on that date. Mr. B had purchased the land in April, 2007. Mr. A purchased from his friend C, who is also a dealer in shares, 1000 shares of X Ltd. @ ` 400 each on 19 th June, 2013, the fair market value of which was ` 600 each on that date. Mr. A sold these shares in the course of his business on 23 rd June, 2013. Further, on 1 st November, 2013, Mr. A took possession of property (building) booked by him two years back at ` 20 lakh. The stamp duty value of the property as on 1 st November, 2013 was ` 32 lakh and on the date of booking was ` 23 lakh. He had paid ` 1 lakh by cheque as down payment on the date of booking. Compute the income of Mr. A chargeable under the head Income from other sources for A.Y.2014-15. (1) (2) (3) (4) Particulars Cash gift is taxable under section 56(2)(vii), since it exceeds ` 50,000 Since bullion is included in the definition of property, therefore, when bullion is received without consideration, the same is taxable, since the aggregate fair market value exceeds `50,000 Stamp value of plot of land at Faridabad, received without consideration, is taxable under section 56(2)(vii) Difference of ` 2 lakh in the value of shares of X Ltd. purchased from Mr. C, a dealer in ` 75,000 60,000 5,00,000 -

Taxability of Gift 94 (5) shares, is not taxable as it represents the stock-in-trade of Mr. A. Since Mr. A is a dealer in shares and it has been mentioned that the shares were subsequently sold in the course of his business, such shares represent the stock-in-trade of Mr. A. Difference between the stamp duty value of `23 lakh on the date of booking and the actual 3,00,000 consideration of ` 20 lakh paid is taxable under section 56(2)(vii). Income from Other Sources 9,35,000 Illustration 2 Discuss the taxability or otherwise of the following in the hands of the recipient under section 56(2)(vii) the Income-tax Act, 1961 - (i) Akhil HUF received ` 75,000 in cash from niece of Akhil (i.e., daughter of Akhil s sister). Akhil is the Karta of the HUF. (ii) Nitisha, a member of her father s HUF, transferred a house property to the HUF without consideration. The stamp duty value of the house property is ` 9,00,000. (iii) Mr. Akshat received 100 shares of A Ltd. from his friend as a gift on occasion of his 25 th marriage anniversary. The fair market value on that date was ` 100 per share. He also received jewellery worth `45,000 (FMV) from his nephew on the same day. (iv) Kishan HUF gifted a car to son of Karta for achieving good marks in XII board examination. The fair market value of the car is ` 5,25,000. Solution: Taxable/ Non-taxable Amount liable to tax (`) Reason (i) Taxable 75,000 Sum of money exceeding `50,000 received without consideration from a non-relative is taxable under section 56 (2) (vii). Daughter of Mr. Akhil s sister is not a relative of Akhil HUF, since she is not a member of Akhil HUF. (ii) Non-taxable Nil Immovable property received without consideration by a HUF from its relative is not taxable under section (56)(2)(vii). Since Nitisha is a member of the HUF, she is a relative of the HUF. (iii) Taxable 55,000 As per provisions of section 56(2)(vii), in case the aggregate fair market value of property, other than immovable property, received without consideration exceeds ` 50,000, the whole of the aggregate value shall be taxable. In this case, the aggregate fair market value of shares (` 10,000) and jewellery (` 45,000) exceeds ` 50,000. Hence, the entire amount of `55,000 shall be taxable. (iv) Non-taxable Nil Car is not included in the definition of property for the purpose of section 56(2)(vii), therefore, the same shall not be taxable.

Taxability of Gift 95 RULES FOR DETERMINATION OF FAIR MARKET VALUE OF THE PROPERTY OTHER THAN IMMOVABLE PROPERTY (a) Valuation of jewellery (i) (ii) (iii) the fair market value of jewellery shall be estimated to be the price which such jewellery would fetch if sold in the open market on the valuation date; in case the jewellery is received by the way of purchase on the valuation date, from a registered dealer, the invoice value of the jewellery shall be the fair market value; in case the jewellery is received by any other mode and the value of the jewellery exceeds `50,000, then, the assessee may obtain the report of registered valuer in respect of the price it would fetch if sold in the open market on the valuation date. (b) Valuation of archeological collections, drawings, paintings, sculptures or any work of art (i) (ii) (iii) the fair market value of archeological collections, drawings, paintings, sculptures or any work of art (artistic work) shall be estimated to be price which it would fetch if sold in the open market on the valuation date; in case the artistic work is received by the way of purchase on the valuation date, from a registered dealer, the invoice value of the artistic work shall be the fair market value; in case the artistic work is received by any other mode and the value of the artistic work exceeds ` 50,000, then, the assessee may obtain the report of registered valuer in respect of the price it would fetch if sold in the open market on the valuation date. (c) Valuation of shares and securities (a) the fair market value of quoted shares and securities shall be determined in the following manner, namely;- (i) if the quoted shares and securities are received by way of transaction carried out through any recognized stock exchange, the fair market value of such shares and securities shall be the transaction value as recorded in such stock exchange; (ii) if such quoted shares and securities are received by way of transaction carried out other than through any recognized stock exchange, the fair market value of such shares and securities shall be,- (1) the lowest price of such shares and securities quoted on any recognized stock exchange on the valuation date, and (2) the lowest price of such shares and securities on any recognized stock exchange on a date immediately preceding the valuation date when such shares and securities were traded on such stock exchange, in cases where on the valuation date, there is no trading in such shares and securities on any recognized stock exchange. (b) the fair market value of unquoted equity shares shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner namely;-

Taxability of Gift 96 ( A L) The fair market value of unquoted equity shares = ( PV ) PE Where, A= Book value of the assets in Balance Sheet drawn up on the valuation date as reduced by any amount paid as advance tax under the Income-tax Act and any amount shown in the balance sheet including the debit balance of the profit and loss account or the profit and loss appropriation account which does not represent the value of any asset. L = Book value of liabilities shown in the Balance Sheet drawn up on the valuation date but not including the following amounts:- (i) (ii) (iii) (iv) (v) (vi) (vii) the paid-up capital in respect of equity shares; the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company; reserves, by whatever name called, other than those set apart towards depreciation; credit balance of the profit and loss account; any amount representing provision for taxation, other than amount paid as advance tax under the Income-tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto; any amount representing provisions made for meeting liabilities, other than ascertained liabilities; any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares. PE = Total amount of paid up equity share capital as shown in Balance Sheet drawn up on the valuation date. PV = the paid up value of such equity shares. (c) the fair market value of unquoted shares and securities other than equity shares in a company which are not listed in any recognized stock exchange shall be estimated to be price it would fetch if sold in the open market on the valuation date and the assessee may obtain a report from a merchant banker or an accountant in respect of such valuation. Note Valuation date means the date on which the respective property is received by the assessee. Special provision for full value of consideration for transfer of assets other than capital assets in certain cases Section 43CA (1) Where the consideration received or accruing as a result of the transfer by an assessee of an asset (other than a capital asset), being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration received or accruing as a result of such transfer.

Taxability of Gift 97 (2) The provisions of sub-section (2) and sub-section (3) of section 50C shall, so far as may be, apply in relation to determination of the value adopted or assessed or assessable under sub-section (1). (3) Where the date of agreement fixing the value of consideration for transfer of the asset and the date of registration of such transfer of asset are not the same, the value referred to in sub-section (1) may be taken as the value assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer on the date of the agreement. (4) The provisions of sub-section (3) shall apply only in a case where the amount of consideration or a part thereof has been received by any mode other than cash on or before the date of agreement for transfer of the asset. Illustration 3 Mr. Hari, a property dealer, sold a building in the course of his business to his friend Rajesh, who is a dealer in automobile spare parts, for ` 90 lakh on 01.01.2014, when the stamp duty value was ` 150 lakh. The agreement was, however, entered into on 01.07.2013 when the stamp duty value was ` 140 lakh. Mr. Hari had received a down payment of ` 15 lakh by cheque from Rajesh on the date of agreement. Discuss the tax implications in the hands of Hari and Rajesh, assuming that Mr. Hari has purchased the building for ` 75 lakh on 12th July, 2012. Would your answer be different if Hari was a share broker instead of a property dealer? Solution Case 1: Tax implications if Mr. Hari is a property dealer In the hands of Mr. Hari In the hands of Hari, the provisions of section 43CA would be attracted, since the building represents his stock-in-trade and he has transferred the same for a consideration less than the stamp duty value on the date of agreement. Therefore, ` 65 lakh, being the difference between the stamp duty value on the date of agreement (i.e., `140 lakh) and the purchase price (i.e., ` 75 lakh), would be chargeable as business income in the hands of Mr. Hari. In the hands of Mr. Rajesh Since Mr. Rajesh is a dealer in automobile spare parts, the building purchased would be a capital asset in his hands. The provisions of section 56(2)(vii) would be attracted in the hands of Mr. Rajesh who has received immovable property, being a capital asset, for inadequate consideration. Therefore, ` 50 lakh, being the difference between the stamp duty value of the property (i.e., ` 140 lakh) and the actual consideration (i.e., ` 90 lakh) would be taxable under section 56(2)(vii) in the hands of Mr. Rajesh. Case 2: Tax implications if Mr. Hari is a stock broker In the hands of Mr. Hari In the hands of Mr. Rajesh In case Mr. Hari is a share broker and not a property There would be no difference in the taxability in the dealer, the building would represent his capital asset hands of Mr. Rajesh, whether Mr. Hari is a property and not stock-in-trade. In such a case, the provisions dealer or a stock broker. of section 50C would be attracted in the hands of Mr. Therefore, the provisions of section 56(2)(vii) would Hari and ` 75 lakh, being the difference between be attracted in the hands of Mr. Rajesh who has the stamp duty value on the date of registration received immovable property, being a capital asset, (i.e., ` 150 lakh) and the purchase price (i.e., ` 75 for inadequate consideration. Therefore, ` 50 lakh, lakh) would be chargeable as short-term capital being the difference between the stamp duty value of gains. the property (i.e., ` 140 lakh) and the actual It may be noted that under section 50C, there is no consideration (i.e., ` 90 lakh) would be taxable under option to adopt the stamp duty value on the date of section 56(2)(vii) in the hands of Mr. Rajesh. agreement, even if the date of agreement is different from the date of registration and part of the consideration has been received on or before the date of agreement otherwise than by way of cash.

Taxability of Gift 98 Example (i) Mr. X has received three gifts from his three friends (a) `55,000 in cash (b) Land with market value `5,00,000 but the value for the purpose of charging stamp duty `4,00,000. (c) Jewellery with market value `3,00,000 In this case, taxable amount shall be 55,000 + 4,00,000 + 3,00,000 = 7,55,000 (ii) Mr. Hitesh Kumar has received gift of `50,000 in cash from his friend, in this case it will not be considered to be his income. (iii) Mr. Vicky Jain has received gift of `1,50,000 in cash from his brother, in this case it will not be considered to be his income. (iv) Mr. Kamal Sapra has received gift of `1,50,000 in cash from his mother s sister, in this case it will not be considered to be his income. (v) Mr. Akash Choudhary has received gift of `1,50,000 in cash from his father s brother, in this case it will not be considered to be his income. (vi) Mr. Saket Mittal has received gift of `1,50,000 in cash from his cousin, in this case it will be chargeable to tax. (vii) Mr. Vikram Bajaj has received gift of `1,50,000 in cash from brother of his spouse, in this case it will not be considered to be his income. (viii) Mr. Harsh Arora has received gift of `1,50,000 in cash from his grand father, in this case it will not be considered to be his income. (ix) Mr. Amanpreet Singh has received gift of `1,50,000 in cash from spouse of his brother, in this case it will not be considered to be his income. (x) Mr. Amit Bhaskar has received gift of `1,50,000 in cash from husband of his sister, in this case it will not be considered to be his income. (xi) Mr. Sunil Dua has received gift of `1,50,000 in cash from sister of his brother s wife, in this case it will be considered to be his income. (xii) Mr. Akhilesh Kumar has received gift of `1,50,000 in cash from the sister of his spouse, in this case it will not be considered to be his income. (xiii) Mr. Suresh Yadav has received gift of `5,000 in cash on his birthday from each of his eleven friends, in this case it will be considered to be his income because the total amount is exceeding `50,000. (xiv) Mr. Ram Singh has received gift of `1,50,000 in kind from his friend, in this case it will be considered to be his income. (xv) Mr. Naresh Kumar has received gift of `1,50,000 in cash from his friend on the occasion of his marriage, in this case it will not be considered to be his income. (xvi) Mr. Ajay Narula has received gift of `75,000 in cash and `75,000 in kind from his fiancee, in this case gift in cash will be considered to be his income and the gift in kind shall also be considered to be his income. Gifts to the Employees Section 17(2)(viii) Rule 3(7)(iv) Gift given by the employer in kind upto `5,000 in aggregate during a particular year is exempt and excess

Taxability of Gift 99 over it is taxable. If the employer has given any voucher or token in lieu of which such gift may be received, it will also be exempt in the similar manner. Gifts in cash or gifts convertible into cash i.e. gift cheques etc. shall be fully chargeable to tax. Gifts or Perquisites from Clients Section 28 The value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession. If any person has received any gift or perquisite or benefit either in cash or in kind from any of his clients, it will be considered to be business receipt and shall be taken into consideration while computing income under the head business/profession. Example ABC Ltd. has engaged one Advocate with regard to its legal proceedings. The company has provided him facilities of free travelling, boarding/lodging and has incurred `25,000, it will be considered to be professional receipt of the Advocate. Scholarship Section 10(16) Any scholarship received by a person for meeting the cost of education shall be exempt from income tax. Award/ Reward Section 10(17A) Any award or reward whether in cash or in kind instituted by the Central Government or the State Government shall be exempt from income tax. Similarly any private award or reward shall be exempt from income tax if approved by the Central Government.

Taxability of Gift 100 Problem 1. Discuss taxability in the following cases: PRACTICE PROBLEMS TOTAL PROBLEMS 5 (i) (ii) Mr. Jeevan Chauhan has received gift of ` 50,000 in cash from his friend. Mr. Sudhanshu Mittal has received gift of ` 2,50,000 in cash from his brother. (iii) Mr. Vishal Jain has received gift of ` 2,50,000 in cash from his mother s sister. (iv) Mr. Druv Goel has received gift of ` 2,50,000 in cash from his father s brother. (v) Mr. Nimit Aggarwal has received gift of ` 2,50,000 in cash from his cousin. (vi) Mr. Naveen Jain has received gift of ` 2,50,000 in cash from brother of his spouse. (vii) Mr. Sachin Bhatia has received gift of ` 2,50,000 in cash from his grand father. (viii) Mr. Sunny Arora has received gift of ` 2,50,000 in cash from spouse of his brother. (ix) Mr. Ritesh Bansal has received gift of ` 2,50,000 in cash from husband of his sister. (x) Mr. Mohit Singh has received gift of ` 2,50,000 in cash from sister of his brother s wife. (xi) Mr. Rahul Kumar has received gift of ` 2,50,000 in cash from the sister of his spouse. (xii) Mr. Hunny Jindal has received gift of `6,000 in cash on his birthday from each of his eleven friends. (xiii) Mr. Satbeer Singh has received gift of ` 2,50,000 in kind from his friend. (xiv) Mr. Ashok Kumar has received gift of `2,50,000 in cash from his friend on the occasion of his marriage. (xv) Mr. Mukesh Verma has received gift of `1,00,000 in cash and `1,00,000 in kind from his fiancée. Problem 2. Mr. Tarun Gulati submits the particulars for the previous year 2013-14 as given below: 1. He has received a gift of `27,000 from one of his friend on 01.09.2013. 2. He has received a gift of `11,000 on 01.10.2013 from his wife Mrs. Tanya Gulati. 3. He has received a gift of `29,000 from his step daughter on 01.01.2014. 4. He has received a gift of `27,000 from grand mother of Mrs. Tanya Gulati on 07.01.2014.

Taxability of Gift 101 5. He has received a gift of `20,000 in kind from his employer on 01.03.2014. 6. He has received gold as gift from his friend on 01.12.2013 with value `2,00,000. 7. He has received `27,000 as gift from his maternal aunt (mother s sister) on 10.12.2013. 8. He has received dividend of `2,00,000 from a domestic company on 31.03.2014. 9. He has received two gifts of `30,000 each from his neighbours on 01.06.2013. Compute his tax liability for assessment year 2014-15. Answer = Tax Liability: `8,450 Problem 3. Mr. X received gift in cash `3,00,000 from son of his father s brother and gift of `1,00,000 in cash from brother of father of Mrs. X. He has agricultural income `5,00,000. Compute his tax liability for Assessment Year 2014-15. Answer = Tax Liability: `39,140 (b) He is aged 81 years. Answer = Tax Liability: Nil (c) He is non-resident and he has completed age of 80 years as on 31.03.2014. Answer = Tax Liability: `41,200 Problem 4. Mr. X received jewellery valued `5,00,000 from brother of his grand father and his agricultural income is `1,00,000. Compute his income and tax liability for Assessment Year 2014-15. Answer = Total Income: `5,00,000; Tax Liability: `39,140 Problem 5. Following gifts are received by Mrs. Sweety, who is carrying on jewellery business, during the previous year 2013-14: (i) On the occasion of her marriage on 07.09.2013, she has received `1,20,000 as gift out of which `85,000 are from relatives and balance from friends. (ii) On 03.10.2013, she has received cash gift of `2,50,000 from cousin of her mother. (iii) A mobile phone worth `15,000 is gifted by her friend on 21.09.2013. (iv) She gets a cash gift of `2,40,000 from the elder brother of her husband's grandfather on 10.12.2013. (v) She has received a cash gift of `6,00,000 from her friend on 27.01.2014. (vi) She has received bullion, the fair market value of which was `4,75,000 on her birthday,19.01.2014. Mrs. Sweety purchased from her friend, who is also carrying jewellery business, jewellery at ` 2,50,000 on 25.01.2014, the fair market value of which was `5,00,000 on that date.

Compute total income and tax liability of Mrs. Sweety for A.Y.2014-15. Taxability of Gift 102 Answer = Total Income: `15,65,000; Tax Liability: `3,08,490 SOLUTIONS TO PRACTICE PROBLEMS Solution 1: (i) Mr. Jeevan Chauhan has received gift of `50,000 in cash from his friend, in this case it will not be considered to be his income. (ii) Mr. Sudhanshu Mittal has received gift of `2,50,000 in cash from his brother, in this case it will not be considered to be his income. (iii) Mr. Vishal Jain has received gift of ` 2,50,000 in cash from his mother s sister, in this case it will not be considered to be his income. (iv) Mr. Druv Goel has received gift of `2,50,000 in cash from his father s brother, in this case it will not be considered to be his income. (v) Mr. Nimit Aggarwal has received gift of `2,50,000 in cash from his cousin, in this case it will be chargeable to tax. (vi) Mr. Naveen Jain has received gift of `2,50,000 in cash from brother of his spouse, in this case it will not be considered to be his income. (vii) Mr. Sachin Bhatia has received gift of `2,50,000 in cash from his grand father, in this case it will not be considered to be his income. (viii) Mr. Sunny Arora has received gift of `2,50,000 in cash from spouse of his brother, in this case it will not be considered to be his income. (ix) Mr. Ritesh Bansal has received gift of `2,50,000 in cash from husband of his sister, in this case it will not be considered to be his income. (x) Mr. Mohit Singh has received gift of `2,50,000 in cash from sister of his brother s wife, in this case it will be considered to be his income. (xi) Mr. Rahul Kumar has received gift of `2,50,000 in cash from the sister of his spouse, in this case it will not be considered to be his income. (xii) Mr. Hunny Jindal has received gift of `6,000 in cash on his birthday from each of his eleven friends, in this case it will be considered to be his income because the total amount is exceeding `50,000. (xiii) Mr. Satbeer Singh has received gift of `2,50,000 in kind from his friend, in this case it will be considered to be his income.

Taxability of Gift 103 (xiv) Mr. Ashok Kumar has received gift of `2,50,000 in cash from his friend on the occasion of his marriage, in this case it will not be considered to be his income. (xv) Mr. Mukesh Verma has received gift of `1,00,000 in cash and `1,00,000 in kind from his fiancee, in this case gift in cash will be considered to be his income and the gift in kind shall also be considered to be his income. Solution 2: ` Computation of income under the head Salary Gift in kind from his employer (20,000 5,000) 15,000.00 Income under the head Salary 15,000.00 Computation of income under the head Other Sources Gift received from friend 27,000.00 Gifts received from neighbours 60,000.00 Gift received from friend in kind 2,00,000.00 Income under the head Other Sources 2,87,000.00 Gross Total Income 3,02,000.00 Less: Deduction u/s 80C to 80U Nil Total Income 3,02,000.00 Computation of Tax Liability Tax on `3,02,000 at slab rate 10,200.00 Less: Rebate u/s 87A (10,200 or 2,000) 2,000.00 Tax before education cess 8,200.00 Add: Education cess @ 2% 164.00 Add: SHEC @ 1% 82.00 Tax Liability 8,446.00 Rounded off u/s 288B 8,450.00 Note: Dividend received by Mr. Tarun Gulati from domestic company is exempt u/s 10(34). Solution 3: ` Computation of income under the head Other Sources Gift received from son of his father s brother 3,00,000 Gift received from bother of father s of Mrs. X 1,00,000 Income under the head Other Sources 4,00,000 Gross Total Income 4,00,000 Less: Deduction u/s 80C to 80U Nil Total Income 4,00,000 Agricultural Income 5,00,000 Computation of Tax Liability Step 1. Tax on (agricultural income + non agricultural income) i.e. Tax on ` 9,00,000/- at slab rates 1,10,000 Step 2. Tax on (`2,00,000 + agricultural income) at slab rates 70,000 Step 3. Deduct Tax at Step 2 from Tax at Step 1 40,000 Less: Rebate u/s 87A (40,000 or 2,000) 2,000 Tax before education cess 38,000 Add: Education cess @ 2% 760 Add: SHEC @ 1% 380 Tax Liability 39,140

Taxability of Gift 104 Solution 3(b): Total Income 4,00,000 Agricultural Income 5,00,000 Tax Liability Nil Note: If non-agricultural income is upto the limit not chargeable to tax (`2,00,000/ 2,50,000/5,00,000), partial integration is not applicable. Solution 3(c): Total Income 4,00,000 Agricultural Income 5,00,000 Computation of Tax Liability Step 1. Tax on (agricultural income + non agricultural income) i.e. Tax on ` 9,00,000/- at slab rates 1,10,000 Step 2. Tax on (`2,00,000 + agricultural income) at slab rates 70,000 Step 3. Deduct Tax at Step 2 from Tax at Step 1 40,000 Add: Education cess @ 2% 800 Add: SHEC @ 1% 400 Tax Liability 41,200 Note: Rebate under section 87A is not allowed to non-resident. Solution 4: ` Computation of income under the head Other Sources Gift in kind from brother of his grand father 5,00,000 Income under the head Other Sources 5,00,000 Gross Total Income 5,00,000 Less: Deduction u/s 80C to 80U Nil Total Income 5,00,000 Agricultural Income 1,00,000 Computation of Tax Liability Step 1. Tax on (agricultural income + non agricultural income) i.e. Tax on ` 6,00,000/- at slab rates 50,000 Step 2. Tax on (`2,00,000 + agricultural income) at slab rates 10,000 Step 3. Deduct Tax at Step 2 from Tax at Step 1 40,000 Less: Rebate u/s 87A (40,000 or 2,000) 2,000 Tax before education cess 38,000 Add: Education cess @ 2% 760 Add: SHEC @ 1% 380 Tax Liability 39,140 Solution 5: Computation of Total Income of Mrs. Sweety for the A.Y. 2014-15 ` Gift received on the occasion of marriage are exempt -- Cash gift received from cousin of Mrs. Sweety s mother is taxable under section 56 2,50,000

(Cousin of Mrs. Sweety s mother is not a relative) Taxability of Gift 105 Mobile phone gifted by her friend is not taxable since it is not included in the definition of property under section 56 -- Cash gift received from elder brother of husband s grandfather is taxable 2,40,000 (Brother of husband s grandfather is not a relative) Cash gift from friend is taxable 6,00,000 Since bullion is included in the definition of property, therefore, when bullion is received without consideration, the same is taxable, since the aggregate fair market value exceeds `50,000 4,75,000 Difference of `2.5 lakh in the value of jewellery purchased from her friend, is not taxable as it represents the stock-in-trade of Mrs. Sweety. Since Mrs. Sweety is carrying jewellery business and it has been mentioned that the jewellery were subsequently sold in the course of her business, such jewellery represent the stock-in-trade of Mrs. Sweety. Nil Income under the head Other Sources 15,65,000 Gross Total Income 15,65,000 Less: Deduction u/s 80C to 80U Nil Total Income 15,65,000 Computation of Tax Liability Tax on ` 15,65,000 at slab rate 2,99,500 Add: Education cess @ 2% 5,990 Add: SHEC @ 1% 2,995 Tax Liability 3,08,485 Rounded off u/s 288B 3,08,490

Taxability of Gift 106 EXAMINATION QUESTIONS PCC MAY 2012 Question 1 (1 Marks) State whether the following are chargeable to tax and the amount liable to tax. A sum of `1,20,000 was received as gift from non-relatives by Raj on the occasion of the marriage of his son Pravin. Answer: As per section 56, if any gift has been received on the occasion of marriage, it will be exempt from income tax but if gift has been received by the parents of the person getting married, such gift shall be taxable hence in this case gift received by Mr. Raj is taxable because marriage is that of his son Pravin. IPCC MAY 2011 Question 7 (4 Marks) The following details have been furnished by Mrs. Hemali, pertaining to the year ended 31.03.2014: (i) Cash gift of `51,000 received from her friend on the occasion of her Shastiaptha Poorthi, a wedding function celebrated on her husband completing 60 years of age. This was also her 25 th wedding anniversary. (ii) On the above occasion, a diamond necklace worth `2 lacs was presented by her sister living in Dubai. (iii) When she celebrated her daughter s wedding on 21.02.2014, her friend assigned in Mrs. Hemali s favour, a fixed deposit held by the said friend in a scheduled bank; the value of the fixed deposit and the accrued interest on the said date was `51,000. Compute the income, if any, assessable as income from other sources. Answer: (i) Any sum of money received by an individual on the occasion of the marriage of the individual is exempt. This provision is, however, not applicable to a cash gift received during a wedding function celebrated on completion of 60 years of age. The gift of `51,000 received from a non-relative is, therefore, chargeable to tax under section 56 in the hands of Mrs. Hemali. (ii) The provisions of section 56 are not attracted in respect of any sum of money or property received from a relative. Thus, the gift of diamond necklace received from her sister is not taxable under section 56, even though jewellery falls within the definition of property. (iii) To be exempt from applicability of section 56, the property should be received on the occasion of the marriage of the individual, not that of the individual s son or daughter. Therefore, this exemption provision is not attracted in this case. Any sum of money received without consideration by an individual is chargeable to tax under section 56, if the aggregate value exceeds `50,000 in a year. Sum of money has, however, not been defined under section 56.

Taxability of Gift 107 Therefore, there are two possible views in respect of the value of fixed deposit assigned in favour of Mrs. Hemali (1)The first view is that fixed deposit does not fall within the meaning of sum of money and therefore, the provisions of section 56 are not attracted. Fixed deposit is also not included in the definition of property. (2) However, another possible view is that fixed deposit assigned in favour of Mrs. Hemali falls within the meaning of sum of money received. Income assessable as Income from other sources If the first view is taken, the total amount chargeable to tax as Income from other sources would be `51,000, being cash gift received from a friend on her Shastiaptha Poorthi. As per the second view, the provisions of section 56 would be attracted in respect of the fixed deposit assigned and the Income from other sources of Mrs. Hemali would be `1,02,000 (`51,000 + `51,000). PE-II NOV 2008 Question 2 (6 Marks) Check the taxability of the following gifts received by Mrs. Rashmi during the previous year 2013-14 and compute the taxable income from gifts for Assessment Year 2014-15: (i) On the occasion of her marriage on 14.08.2013, she has received `90,000 as gift out of which `70,000 are from relatives and balance from friends. (ii) On 12.09.2013, she has received gift of `18,000 from cousin of her mother. (iii) A cell phone of `21,000 is gifted by her employer on 15.08.2013. (iv) She gets a gift of `25,000 from the elder brother of her husband's grandfather on 25.10.2013. (v) She has received a gift of `2,000 from her friend on 14.04.2013. (Modified) Answer: Computation of taxable income of Mrs. Rashmi from gifts for A.Y. 2014-15 Particulars Taxable amount Reason for taxability or ` otherwise of each gift Relatives and friends Nil Gifts received on the occasion of marriage are not taxable. Cousin of Mrs. Rashmi s mother 18,000 Cousin of Mrs. Rashmi s mother is not a relative. Hence, the gift is taxable. Elder brother of husband s grandfather 25,000 Brother of husband s grandfather is not a relative. Hence, the gift is taxable. Friend 2,000 Gift from friend is taxable. Aggregate value of gifts 45,000 Since the aggregate value of gifts received by Mrs. Rashmi during the previous year 2013-14 does not exceed `50,000, the same is not chargeable to tax under section 56 of the Income-Tax Act, 1961.

Taxability of Gift 108 Gift received from the employer in kind upto `5,000 is exempt from income tax but excess over it is taxable hence in this case taxable amount of gift shall be `16,000 (21,000 5,000) and it will be taxable under the head Salary. PE-II MAY 2008 Question 3 Choose the correct answer with reference to the provisions of the Income-tax Act, 1961: (1 Marks) Rakesh received `70,000 from his friend on the occasion of his birthday. (a) The entire amount of `70,000 is taxable (b) `25,000 is taxable (c) The entire amount is exempt (d) None of the above. Answer: (a) The entire amount of `70,000 is taxable. Question 1 PE-II MAY 2005 (1 Marks) Gift of `5,00,000 received on 10 th July, 2013 through account payee cheque from a non-relative regularly assessed to income-tax, is (a) A capital receipt not chargeable to tax (b) Chargeable to tax as income from other sources (c) Chargeable to tax as business income (d) Exempt upto `50,000 and balance chargeable to tax as income from other sources. Answer: (b) Chargeable to tax as income from other sources