The last head is a category of residuary incomes, which are receipts of earnings that cannot be classified under any other heads of income. Some examples of incomes generally taxable under the head 'income from other sources' include: 1) dividends, lottery winnings, interest received, rent received, and monetary gifts over 50,000. 2) Any property received as a gift over the 50,000 threshold or without consideration will also be taxed. 3) Some exemptions include gifts from relatives and funds from approved charitable organizations.
The last head is a category of residuary incomes, which are receipts of earnings that cannot be classified under any other heads of income. Some examples of incomes generally taxable under the head 'income from other sources' include: 1) dividends, lottery winnings, interest received, rent received, and monetary gifts over 50,000. 2) Any property received as a gift over the 50,000 threshold or without consideration will also be taxed. 3) Some exemptions include gifts from relatives and funds from approved charitable organizations.
Original Description:
Original Title
Section 56 - Decoding Section 56 of the Income-tax Act, 1961 (IT
The last head is a category of residuary incomes, which are receipts of earnings that cannot be classified under any other heads of income. Some examples of incomes generally taxable under the head 'income from other sources' include: 1) dividends, lottery winnings, interest received, rent received, and monetary gifts over 50,000. 2) Any property received as a gift over the 50,000 threshold or without consideration will also be taxed. 3) Some exemptions include gifts from relatives and funds from approved charitable organizations.
The last head is a category of residuary incomes, which are receipts of earnings that cannot be classified under any other heads of income. Some examples of incomes generally taxable under the head 'income from other sources' include: 1) dividends, lottery winnings, interest received, rent received, and monetary gifts over 50,000. 2) Any property received as a gift over the 50,000 threshold or without consideration will also be taxed. 3) Some exemptions include gifts from relatives and funds from approved charitable organizations.
The last head is a category of residuary incomes, which are
receipts of earnings that cannot be classified under any other
heads of income.
Let’s gather an overview of incomes that are generally
taxable under the head, ‘income from other sources’:
Dividends are reported under the head ‘income from other
sources’ and are taxed under Section 56(2)(i) of the ITA. This is based on the residential status of the source company that paid out the dividend
One-time income earned from winning lotteries, crossword
puzzles, and races, including horse races, card games, gambling, or betting. These incomes are chargeable to tax at a flat rate of 30% and cess at 4%
The amount an employer receives from his employees as a
contribution towards provident fund (PF), employees’ state insurance (ESI), and superannuation fund, among others. Such an amount will be taxable if the employer does not credit the amount received from the employee towards the respective funds’ account.
Income received as interest on securities (Section 56(2)(id))
Advance money received or money received in negotiation for
transfer of a capital asset (provided the money is forfeited and it doesn’t result in the transfer of such asset)
Income from letting out of plant, machinery, or furniture
belonging to a taxpayer (Section 56(2)(ii))
Income from renting out machinery or furniture with buildings,
where such letting is inseparable(Section 56(2)(iii)) Any sum received under Keyman insurance policy, including bonus (Section 56 (2)(iv))
As per Section 56(2)(viib) of the ITA, when a privately held
company issues shares at a particular price, which is greater than Fair Market Value (FMV), tax is chargeable to the amount received in excess of FMV
Tax on Gifts Received under
Section 56(2)(x) Gifts received in the form of cash (cheque, online transfer, fixed deposit, demand draft or any other form) and cash equivalents or property (moveable or immovable) or in-kind during a financial year are taxable. As per Section 56 (2)(x) of the Income-tax Act, 1961 (ITA), you are required to pay taxes if the gift value is greater than Rs 50,000. While gifts received up to Rs 50,000 are completely tax-free, if this limit is crossed, the whole amount of gifts received becomes taxable in the hands of the recipient.
The aggregate value of gifts received during the financial
year is taken into account for taxability and it is not based on individual gift. In a case where the aggregate value of gifts received during the year is greater than Rs 50,000, the aggregate value of these gifts will be charged to tax.For example, an individual received gifts worth Rs 15,000 on April 1, 2021, and Rs 40,000 on March 31, 2022. In this case, the entire Rs 55,000 is taxable under Section 56(2)(x), as the aggregate value of gifts exceeds Rs 50,000 during a financial year under the head ‘income from other sources’. Similarly, a gift in cash from an employer is fully taxable in the hands of the employee under the head of salaries, as per the ITA. However, in the case of a gift received in kind, the amount is fully taxable if the value exceeds Rs 50,000.
Tax on Property Transactions
under Section 56(2)(x) Any property transaction (movable and immovable) has income tax and stamp duty implications.
In the case of any immovable property, which could be land
and building or both, received without consideration (without paying anything for it), the stamp duty value (value adopted by the authorities for payment of stamp duty) of which exceeds Rs 50,000. The full stamp duty value of such property will be taxable in the hands of the beneficiary.
On the other hand, if the property is received for
consideration and the stamp duty value of such property exceeds Rs 50,000 or 10% of the consideration, then the stamp duty value in the excess of consideration will be taxable as income in the hands of the buyer.
Note: As per the Finance Act, 2021, the rate of variation
allowable between the stamp duty value and actual sale consideration value, has been raised from 10% to 20%. However, the said provision was invoked for the period November 12, 2020, to June 30, 2021, in the case of residential properties costing up to Rs 2 crore. In other cases, the rate of variation allowed is 10% of the consideration. Movable property such as jewellery, gold, shares, securities, archaeological collections, drawings, paintings, sculptures, any work of art, and bullion, among others, when received at a reduced price or without consideration, the aggregate FMV of which is greater than Rs 50,000, the aggregate FMV falls under the tax ambit. However, for a consideration, which is less than the aggregate fair market value of the property by an amount exceeding Rs 50,000, the entire excess fair market value will be taxable.
Exemptions under Section 56
(2)(x) In case if a relative offers a gift, it is exempt from tax under Section 56(2)(x). According to the ITA, the following persons are considered relatives: spouse, brother/sister, brother/sister of the spouse, brother/sister of either of the parents, any blood relative/offspring, any blood relative/offspring of the spouse, spouse of the individuals referred above. For a Hindu undivided family (HUF), any member thereof.
Friends, however, are not included in the list of relatives, so
any gifts received from them are taxable.
Further, gifts that a couple receives during their marriage are
tax exempted. At the same time, gifts that an individual gets on occasions such as a birthday or anniversary remain taxable.
On the other hand, gifts received under a will or by way of
inheritance and gifts received in contemplation of the death of the donor (for example, a terminally-ill person anticipating death in the near future) are also tax-free. The income tax provision of taxation of gifts will not be applicable if any sum of money or property is received from:
Any local authority, as per Section 10(20) (defines what kind
and hospital/other medical institution as per Section 10(23C)
The transaction, which is not regarded as transfer under
Section 47, or from any individual by a trust that is created/established with the sole intention to benefit the relative of the individual
Tax Relief in the Aftermath of
Covid-19 The Finance Act, 2022 introduced amendments to Section 56 (2)(x) to provide tax relief to taxpayers to tide over the Covid- 19 health crisis during the financial year 2019-20 and subsequent years. As per the amendment, the amount received from the employer or any well-wisher for COVID-19 treatment is tax-free. Further, money received by the family members from the employer or any other person in case of demise of a breadwinner of the family will be exempt from