CA- INTERMEDIATE

INCOME TAX FLOWCHARTS

(May 2022 ATTEMPT)
Chapter :- TAXATION OF GIFTS

By :- CA SANCHIT GROVER
(Only faculty with more than 4.5 years of experience in tax consultancy at Big 4)
 Chapter 11:- Taxability of GIFTS Any movable asset
(other than
specified movable
Prepared By:- CA Sanchit Grover (AVJ Academy) Sec 56(2)(x) - Introduction asset – category 3)
is received without
consideration or for
Gifts are made taxable under I.T.Act, 1956 to discourage unethical practices prevalent wherein the mechanism of gifts is used to convert black money into white money inadequate
consideration, shall
not be taxable in the
Prior to F.A.2017, Sec 56(2)(vii) sought to tax gifts but was made applicable only when recipient of the gifts were Individual and HUF but after F.A.2017, Sec 56(2)(vii) was replaced hands of recipient
by Sec 56(2)(x) which has been made applicable on all assesses u/s 56(2)(x)

Under the provisions of Sec 56(2)(x), the gifts have been classified into 3 categories which means the taxability of gifts shall only be decided based on the criteria mentioned therein

Category 1 - GIFT of 'SUM OF MONEY’ Category 2 - GIFT of ‘IMMOVABLE PROPERTY’

Gift covered Taxability in the Category 2A: Gift of immovable property Category 2B: Purchase of immovable property for
under Category 1 hands of recipient without consideration inadequate consideration i.e. < SDV

'Sum of Money’ received by any person from

Taxability in the hands of recipient Taxability in the hands of recipient
any other person without consideration

Aggregate value of such gifts
received during the relevant P/Y
(from all persons) ≤ Rs.50,000
Aggregate value of such gifts
received during the relevant P/Y
(from all persons) > Rs.50,000
No tax treatment in the hands of SDV of immovable No tax treatment in the SDV of immovable property > Purchase Entire difference i.e. (SDV-
the recipient property ≤ Rs.50,000 hands of the recipient Price and following conditions are satisfied: PP) would be taxable in the
SDV of immovable Such SDV would be taxable a) (SDV – PP) > Rs.50,000 hands of recipient u/h
Sum total of all the gifts received property > Rs.50,000 in the hands of recipient u/h b) (SDV – PP) > 10% of PP 'Income from OS'
would be taxable in the hands of 'Income from OS' In other cases (i.e. case other than above) No tax treatment in the
recipient u/h 'Income from OS' hands of the recipient
Prepared By:- CA Sanchit Grover (AVJ Academy)

Certain points regarding Category 1 Certain points regarding Category 2

1
1 Limit of Rs.50,000 will be applied in respect of gift of each immovable As per FA 2021, the above limit of 10%
Limit of Rs.50,000 will apply to the aggregate value of all gifts property individually and not in aggregate for all the gifts of immovable shall be increased to 20%if all
received during the year and not individually for each gift property received during the year following conditions are satisfied:-
a) Transfer of Residential HP takes
2 2 place during 12-11-20 till 30-06-21
If aggregate amount of gifts exceed Rs.50,000 (let’s say Rs. 70,000), b) Transfer is by way of first time
then Rs.70,000 will be taxable and not just Rs.50,000 SDV of immovable property is relevant and not FMV
allotment of residential unit to
Meaning of SDV :
recipient by any person who holds such
‘SDV’ means the value adopted by any authority of the CG/SG for the
3 property as SIT
'Sum of money' shall include any form of money such as cash, cheque, purpose of payment of stamp duty in respect of an immovable property
c) Consideration received or accrued <
draft, etc. With regard to fixed deposit with banks, ICAI has accepted 2 Cr.
both the viewpoints: 3
1st viewpoint: If FD is considered as ‘sum of money’, it will be treated If date of agreement and date of registration are not the same, then SDV as
as gift of sum of money and taxability will be as per above criteria on the date of agreement can be taken into consideration provided some In case HP is transferred by person
2nd viewpoint: If FD is not considered as ‘sum of money’, it will not be booking amount (entire sale consideration or part thereof) has been paid by who holds it as CA, then limit of 20%
treated as gift and hence not taxable even if amt. exceeds Rs.50,000 A/c payee cheque or bank draft or by use of ECS or any other prescribed won’t apply in hands of recipient
electronic method
 Category 3 – GIFT of ‘SPECIFIED MOVABLE PROPERTY’

“Specified Movable Property" means any of the following capital assets:

Shares and Securities Jewellery Archaeological Collections Drawings Paintings Sculptures Any Work of Art Bullion (i.e. gold and silver
(relating to past/ancient times) in its purest form)

includes Prepared By:- CA Sanchit Grover (AVJ Academy)

Gift of any other asset such as motor cars,
mobile phones, watches, laptops, etc. is not
ornaments of gold, silver, platinum precious or semi-precious stones, whether or not set in any furniture, taxable in the hands of the recipient
or any other precious metal utensil or other article or worked or sewn into any wearing apparel

Category 3A -
Gift of Specified movable
property without consideration
Taxability in the
hands of the
Category 3B –
recipient
Purchase of Specified movable
property for inadequate
consideration (PP < FMV)
Cases in which Gifts are not taxable
Aggregate FMV of such property ≤ Rs.50,000 No tax treatment in the hands of the recipient
Aggregate FMV of such property > Rs.50,000 Such aggregate FMV would be fully taxable in Limit of Rs.50,000 has to be
the hands of the recipient u/h 'Income from OS’ checked in respect of
aggregate FMV of specified
movable assets received by
FMV (-) Purchase Price ≤ Rs.50,000 No tax treatment in the hands of the recipient
any person during the P/Y
FMV (-) Purchase Price > Rs.50,000 Entire difference [i.e. FMV (-) PP] would be fully taxable from all persons
in the hands of the recipient u/h 'Income from OS’
Note:- The toleration limit of 10% is not applicable here
Prepared By:- CA Sanchit Grover (AVJ Academy)
Some Special Cases of GIFTS
Meaning of Relative

Gifts Received by  Gifts received in kind (whether specified moveable asset

1) Gifts received from any relative (irrespective of Employees from or not) by an employee from his employer are exempt
In case of Individual In case of HUF Employers upto Rs. 5,000 and amount in excess of Rs.5,000 is taxable
occasion of receipt)
2) Gifts received by an individual on the occasion of – Sec 17(2)(viii) in the hands of the employee u/h 'Income from Salary'
his marriage from relatives/non-relatives  Gifts received in cash or convertible into cash are fully
Note: (Gifts received by the parents of the e) Spouse of the individual; All members of taxable in the hands of employee u/h 'Income from Salary'
individual on the occasion of marriage of f) Brother or sister of the HUF Gifts Received in  If a person carrying any B/P receives any gift/perquisite
individual are taxable in the hands of the parents. individual; Connection with from his clients, the value of such gift/perquisite shall be
Further, gifts received on marriage anniversary g) Brother or sister of the Business/ considered to be a business receipt
are also taxable) spouse of the individual; Common relations not Profession  Such gift/perquisite has to be considered while
3) Gifts received under a will or by way of h) Brother or sister of covered in definition - Sec 28 calculating the income of the person u/h 'PGBP’ whether
inheritance either of the parents of such gift/perquisite is convertible into money or not
the individual; a) Nephew & Niece of
4) Gifts received in contemplation of the death of Scholarship Any scholarship received by a person for meeting the cost of
i) any lineal ascendant or the individual
the donor or payer - Sec 10 education is exempt from income tax
descendant of the b) Cousins of the
5) Gifts received from any approved local
individual individual
authority/charitable institution/charitable  Provisions of taxation of gifts u/s 56(2)(x) shall not
j) any lineal ascendant or c) Brother & Sister of
trust/charitable hospital/university etc.
Parents of Spouse Important be applicable if recipient receives the gifts as SIT
6) Gift of property by way of transaction not descendant of the spouse Point  In other words, gift taxation will apply only where
of the individual; and of the Individual
regarded as transfer under certain clauses of regarding the recipient receives the goods as capital assets
k) spouse of the person d) Brother & Sister of
Sec 47 Sec Example:- If Jewellery is given w/o consideration to a
referred to in items (b) to Grandparents of
7) Gift received by an individual by a trust created person who is engaged in business of selling jewellery,
(f) Individual or 56(2)(x)
or established solely for the benefit of relative of then nothing is taxable u/s 56 (COA of such SIT will be
Spouse
the individual Nil & hence entire Sale value will be PGBP income)
 Linking of Gift Provisions u/s 56(2)(x) with Capital Gains Provisions in Different Scenarios

Category 1:- Transfer of any Property w/o Consideration Category 2:- Transfer of any Property for inadequate consideration

Mr. X (Transferor) Mr. Y (Transferee) Mr. X (Transferor) Mr. Y (Transferee)

Transfer without consideration on 05-09-2021 Sale of property on 05-09-2021 for Rs. 21L

SDV/FMV as on date of Transfer = Rs. 25L SDV/FMV as on date of Transfer = Rs. 25L
Prepared By:- CA Sanchit Grover (AVJ Academy) Purchase price = Rs. 10L
Purchase price = Rs. 10L Asset not held as Stock Asset not held as Stock
Date of Purchase – 01-04-2008 Date of Purchase – 01-04-2008 in trade by Mr. Y
in trade by Mr. Y
Scenario 1A) When Gift doesn’t fall in exceptions of 56(2)(x) like Marriage, relatives etc Scenario 2A) When Gift doesn’t fall in exceptions of 56(2)(x) like Marriage, relatives etc

Tax Implications Tax Implications for Mr. Y Case 1) Tax Implications for Mr. X Tax Implications for Mr. Y
Case 1) for Mr. X Immovable Prop.
Immovable - SDV of Rs. 25L taxable u/s 56(2)(x) u/h Sec 50C applicable. CG computed by
sold for - Rs. 4L (25L minus 21L) will
Property Not a transfer as Other Sources in PY 21-22 inadequate cons considering 25L as FVC (not 21L)
be taxable u/s 56(2)(x) u/h
given free per Sec 47 & hence - When it is sold, POH shall be 05-09-21 till Other Sources for PY 21-22
of Cost no Cap. Gains shall date of transfer. COA will be Rs. 25L

Prepared By:- CA Sanchit Grover (AVJ Academy)

Case 2) Unquoted Tax Implications for Mr. X - When it is sold, POH shall
arise (Concept of Previous Owner not applicable) shares sold for be from 05-09-21 till date of
Sec 50CA applicable. CG computed by
inadequate cons. transfer.
considering 25L as FVC (not 21L)
Case 2) Tax Implications Tax Implications for Mr. Y - COA will be Rs. 25L (21L
Specified for Mr. X purchase price + Rs. 4L taxed
Moveable - FMV of Rs. 25L taxable u/s 56(2)(x) u/h
Not a transfer as Case 3) Any other Tax Implications for Mr. X u/s 56)
Property Other Sources in PY 21-22
per Sec 47 & hence Specified
given free - When it is sold, POH shall be 05-09-21 till Neither 50C nor 50CA applicable. CG
no Cap. Gains shall Moveable Prop. Note: Concept of Cost to PO
of Cost date of transfer. COA will be Rs. 25L sold for computed by considering 21L as FVC
arise (Concept of Previous Owner not applicable) doesn’t apply here
inadequate cons.

Scenario 1B) When Gift falls in exceptions of 56(2)(x) like Marriage, relatives etc Scenario 2B) When Gift falls in exceptions of 56(2)(x) like Marriage, relatives etc

Tax Implications Tax Implications for Mr. Y Case 1) Tax Implications for Mr. X Tax Implications for Mr. Y
Case 1) for Mr. X Immovable Prop.
Immovable Sec 50C applicable. CG computed by - Nothing is taxable u/s
- Nothing is taxable u/s 56(2)(x) u/h Other sold for
Property Not a transfer as considering 25L as FVC (not 21L) 56(2)(x) u/h Other Sources
Sources since it falls under exceptions inadequate cons
given free per Sec 47 & hence - When it is sold, POH shall be 01-04-08 till for PY 21-22 since it falls
of Cost no Cap. Gains shall date of transfer. COA will be Rs. 10L Tax Implications for Mr. X under exceptions
Case 2) Unquoted
arise (Concept of Previous Owner applicable here) shares sold for - When it is sold, POH shall
Sec 50CA applicable. CG computed by be from 05-09-21 till date of
inadequate cons.
considering 25L as FVC (not 21L) transfer.
Case 2) Tax Implications Tax Implications for Mr. Y
for Mr. X - COA will be Rs. 21L (not
Specified
Moveable - Nothing is taxable u/s 56(2)(x) u/h Other 25L since nothing has been
Not a transfer as Case 3) Any other Tax Implications for Mr. X
Property Sources since it falls under exceptions Specified taxed u/s 56)
per Sec 47 & hence - When it is sold, POH shall be 01-04-08 till
given free Moveable Prop. Neither 50C nor 50CA applicable. CG
no Cap. Gains shall date of transfer. COA will be Rs. 10L Note: Concept of Cost to PO
of Cost sold for computed by considering 21L as FVC
arise (Concept of Previous Owner applicable here) doesn’t apply here also
inadequate cons.
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