Section 56 - Taxable under Income from Other Sources

Taxation of capital transactions under Section 56(2)(x)

Given below are the tax benefits you can enjoy under Section 56(2)(x):

1. Any immovable property that is received without consideration (without being paid anything for it), including land and buildings or both, and whose stamp duty value exceeds Rs.50,000. In the beneficiary's possession, the entire stamp duty value of such property will be taxable.

1. Income tax and stamp duty issues can arise in any real estate transaction, whether it be mobile or immovable.

1. On the other hand, if the property is acquired for consideration and the stamp duty value exceeds Rs.50,000 or 10% of the consideration, the buyer will be required to pay income tax on the stamp duty value in excess of the consideration.

1. You must note that under the fiscal law 2021, the allowed difference between the value of the registration tax and the actual value of the payment for the sale has increased from 10% to 20%. However, the foregoing provision was applied between 12 November 2020 and 30 June 2021, in the case of residential properties valued at up to Rs 2 core. In other cases, the rate of change allowed is 10% of the review.

1. Personal property such as jewelry, gold, stocks, securities, archaeological collections, drawings, paintings, sculptures, any artwork and bullion, among others, when received at a reduced or unaccounted for price, for a total FMV greater than Rs.50,000, the global FMV is in the taxable range. However, to consider less than the overall fair market value of the property for an amount greater than Rs.50,000, the entire excess fair market value will be taxable.

Taxation of Gifts received under Section 56(2)(x)

Given below are the tax implications for gifts received under Section 56(2)(x):

1. Gifts that are received in a financial year in the form of money, money equivalents, property, or in-kind are all taxed. If the gift value exceeds Rs.50,000, you are supposed to pay taxes under Section 56(2)(x) of the Income-tax Act, 1961. While gifts up to Rs.50,000 are entirely tax-free, any amount above the threshold amount is taxable.

1. Similarly, cash gifts from employers are fully taxable to the employee as wages under the Income Tax Act. However, in case of donations received in kind, this amount will be fully taxable if the value exceeds Rs.50,000.

1. For tax purposes, the total amount of gifts received over the course of the fiscal year is taken into consideration; individual donations are not taken into account. If the total amount of gifts received throughout the year exceeds Rs.50,000, the total amount of those gifts will be subject to tax. For instance, on 1 April 2022, and 31 March 31, a person got gifts totaling Rs.20,000 and Rs.45,000, respectively. Since the total value of the presents exceeds Rs.50,000 during the financial year under the heading ‘income from other sources,’ the entire amount of Rs.65,000 in this case is taxable under Section 56(2)(x).

Section 56(2)(x) exemptions

1. You can enjoy certain exemptions under Section 56(2)(x). Those exemptions are given below:

1. Any local authority, as defined under Section 10(20) of the Income Tax Act.

1. Trust/institution, hospital/other medical institution, university/other educational institution, and fund/foundation referred to in Section 10(23).

1. Trusts/organizations registered under Section 12A, Section 12AA or Section 12AB.

1. Foundations/Trusts/Institutions, Universities/Other Educational Institutions and Hospitals/Other Medical Institutions under Section 10(23C).

1. Transaction, not considered transferrable under Section 47, or of any person by a trust created/established for the sole purpose of benefiting that person's next of kin.

There are certain things that you must keep in mind when seeking exemption under this rule:

1. According to Section 56(2), gifts from relatives are free from being taxed. The ITA states that the following people are considered relatives: the spouse, siblings, the siblings of the spouse, siblings of either parent, any blood related or offspring, the spouse of the people mentioned above. any member of a Hindu Undivided Family (HUF).

1. However, friends are not considered to be family, therefore any gifts they give you are subject to taxes.

1. Additionally, gifts that a couple receives while they are married are tax-free. Gifts that a person receives on special occasions like their birthday or anniversary, however, are still taxable.

On the other hand, gifts received by will or inheritance and gifts received prior to the donor's death are also exempt from being taxed.

Tax relief after Covid-19

The Finance Act 2022 introduced amendments to Article 56(2)(x) to provide tax relief to taxpayers in response to the Covid-19 health crisis in the 2019-2020 financial year and thereafter. Under the amendment, money received from an employer or any other supporter for the treatment of COVID-19 is not taxable. In addition, money received by family members from the employer or any other person in the event of the death of the breadwinner will be exempt from tax. There is no exemption limit if the money is received from the employer. But there is an exemption limit of Rs.10 lakh for the amount received from any other person.