Taxation of a gift of money received by an individual (as set, 1961 Act, AY 2016-17)

The charge

For assessment year 2016-17 the provision is section 56(2)(vii)(a). Where an individual (or a Hindu undivided family) receives any sum of money without consideration in a previous year from any person, on or after 1 October 2009 (and, as later amended, before 1 April 2017), the sum is income under the head Income from other sources. A gift by cash, cheque, draft or bank transfer is a sum of money for this purpose. Section 2(24)(xv) brings such sums within the definition of income.

The fifty thousand rupee threshold

• All sums received without consideration during the previous year from persons other than the excepted ones are added up.
• If the aggregate is not more than ₹50,000, nothing is taxed.
• If it is more than ₹50,000, the whole aggregate is taxed, not just the excess. The clause charges the whole of the aggregate value (section 56(2)(vii)(a)).

So gifts of ₹30,000 and ₹25,000 from two friends make ₹55,000, and all ₹55,000 is taxed.

Gifts that are not taxed

The second proviso to section 56(2)(vii) excludes a sum received:

1. from any relative;
2. on the occasion of the individual's marriage (from anyone, with no limit);
3. under a will or by way of inheritance;
4. in contemplation of the death of the payer;
5. from a local authority as defined in the Explanation to section 10(20);
6. from a fund, foundation, university, educational institution, hospital, medical institution, trust or institution referred to in section 10(23C);
7. from a trust or institution registered under section 12AA.

Exempt receipts are left out before the ₹50,000 test is applied. (A further exclusion, for certain receipts under section 47, was added only with effect from 1 April 2017 and does not apply to this year.)

Who is a relative

For an individual, Explanation (e) to section 56(2)(vii) lists:

• the spouse;
• a brother or sister, and a brother or sister of the spouse;
• a brother or sister of either parent;
• any lineal ascendant or descendant, of the individual or of the spouse;
• the spouse of any person in the four items above.

A friend, or a cousin (the child of a parent's brother or sister), is not in the list, so a gift from either counts towards the ₹50,000.

Illustrations (our own figures)

The taxable gift is part of the receiver's income from other sources for the year in which it is received.