Gifts taxed under section 56(2), and the deductions under sections 80C and 80D (as set, 1961 Act, AY 2020-21)

Gifts under section 56(2)

Income from other sources includes certain receipts without consideration, or for too little consideration. For receipts on or after 1 April 2017 the charging clause is section 56(2)(x). It applies to any person (individual, Hindu undivided family, firm, company or other), replacing the earlier clauses (vii) and (viia), which covered only individuals and Hindu undivided families and, for shares, firms and closely held companies. The value taxed and the threshold differ by the kind of receipt.

Sum of money

Money received without consideration from one or more persons in the year is taxed in full if the aggregate exceeds ₹50,000 (section 56(2)(x)(a)). The limit is a threshold, not an exemption: gifts of ₹30,000 and ₹25,000 from two friends (₹55,000 together) are taxed at ₹55,000, while ₹45,000 in all is not taxed.

Immovable property

Land, a building or both (section 56(2)(x)(b)):

1. Without consideration: if its stamp duty value exceeds ₹50,000, the whole stamp duty value is income.
2. For a consideration less than the stamp duty value: the excess of stamp duty value over the consideration is income, if that excess is more than the higher of ₹50,000 and 5% of the consideration (item (B), as substituted with effect from 1 April 2019). Where the date of the agreement fixing the amount of the consideration and the date of registration differ, the stamp duty value on the agreement date may be taken, if at least part of the price was paid by account payee cheque, account payee draft, the electronic clearing system through a bank account or another prescribed electronic mode on or before that date.

Other property

Movable property of the kinds listed in the Explanation to section 56(2)(vii) (shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures, any work of art, and bullion), if held as a capital asset (section 56(2)(x)(c)):

1. Without consideration: if the aggregate fair market value exceeds ₹50,000, the whole of it is income.
2. For a consideration less than the aggregate fair market value by more than ₹50,000: the excess of the aggregate fair market value over the consideration is income.

A car, a television or other personal goods are not property for this purpose, so a gift of them is not taxed here.

Receipts not taxed as gifts

The proviso to section 56(2)(x) excludes sums and property received:

1. from a relative (for an individual: the spouse; a brother or sister of the individual or of the spouse; a brother or sister of either parent; any lineal ascendant or descendant of the individual or of the spouse; and the spouse of any of these), or, for a Hindu undivided family, from a member;
2. on the occasion of the individual's marriage;
3. under a will or by inheritance;
4. in contemplation of the death of the payer or donor;
5. from a local authority (as defined in the Explanation to section 10(20)), or from a fund, foundation, university, educational or medical institution or trust referred to in section 10(23C), or from or by a trust or institution registered under section 12A or section 12AA;
6. by way of a transaction that section 47 does not regard as a transfer, under the clauses of section 47 the proviso names (clauses (i), (iv), (v), (vi), (via), (viaa), (vib), (vic), (vica), (vicb), (vid) and (vii)). Each carries its own conditions: for example, a transfer by a company to its subsidiary counts only if the parent or its nominees hold the whole of the subsidiary's share capital and the subsidiary is an Indian company (clause (iv)), and one by a wholly owned subsidiary to its holding company only if the holding company is an Indian company (clause (v)), neither covering a transfer as stock-in-trade made after 29 February 1988 (proviso to those clauses); a transfer in an amalgamation counts if the amalgamated company is an Indian company (clause (vi)); and a transfer of shares in an Indian company from an amalgamating foreign company to the amalgamated foreign company counts only if at least 25% of the amalgamating company's shareholders remain shareholders of the amalgamated one and the transfer attracts no capital gains tax in the amalgamating company's country of incorporation (clause (via)); and
7. by a trust set up only to benefit an individual's relatives, when what it receives comes from that individual.

Deduction under section 80C

An individual or a Hindu undivided family may deduct sums paid or deposited in the previous year, out of any income, up to ₹1,50,000 (section 80C(1)); together with sections 80CCC and 80CCD(1) the limit stays ₹1,50,000 (section 80CCE). The main payments (section 80C(2)):

1. life insurance premium on the life of the individual, the spouse or any child (for a Hindu undivided family, any member), counting only up to 10% of the actual capital sum assured for policies issued on or after 1 April 2012 (section 80C(3A)); for a policy issued on or after 1 April 2013 on the life of a person with a disability or severe disability referred to in section 80U, or with a disease or ailment specified in the rules under section 80DDB, the limit is 15% (proviso to section 80C(3A)). The actual capital sum assured is the lowest amount the policy assures on the insured event at any time during its term, leaving out any premium agreed to be returned and any bonus or other benefit over the sum actually assured (Explanation to section 80C(3A));
2. premium for a contract for a deferred annuity on the same persons (other than an annuity plan under clause (xii)), if the contract gives the insured no option to take cash instead of the annuity (section 80C(2)(ii)), and a sum deducted, under his conditions of service, from the salary the Government pays an individual, to secure him a deferred annuity or to provide for his spouse or children, so far as it does not exceed one-fifth of the salary (section 80C(2)(iii));
3. the employee's contribution to a statutory or recognised provident fund, and contributions to the public provident fund;
4. subscription to National Savings Certificates, units of an equity linked savings scheme, a unit-linked insurance plan, and deposits under the Sukanya Samriddhi scheme for a girl child;
5. tuition fees paid to a university, college or school in India for the full-time education of up to two children, excluding development fees, donations and the like (section 80C(2)(xvii));
6. payments for buying or building a residential house whose income is chargeable under the head "Income from house property" (or would be, had the assessee not used it as his own residence) (section 80C(2)(xviii)): instalments or part payments due under a self-financing or other scheme of a development authority, housing board or other authority that builds and sells houses on an ownership basis, or owed, towards the cost of the house allotted to him, to a company or co-operative society in which he holds shares or membership; repayment of a loan; and stamp duty, registration fee and other expenses of transferring the house to the assessee. The loan counts only if it is from a lender listed in section 80C(2)(xviii)(c): the Central or a State Government; a bank, including a co-operative bank; the Life Insurance Corporation; the National Housing Bank; a public company formed and registered in India whose main object is long-term finance for buying or building houses in India for residence and which is eligible for the deduction under section 36(1)(viii); a company in which the public are substantially interested, or a co-operative society, engaged in financing house construction; or the assessee's employer, where it is an authority, board, corporation or other body set up under a Central or State Act, or a public company, a public sector company, a university established by law or a college affiliated to it, a local authority or a co-operative society. So a loan from a friend or relative does not qualify;
7. term deposits of not less than five years with a scheduled bank, five-year post office time deposits, NABARD bonds and the Senior Citizens Savings Scheme.

The deduction is withdrawn, and the amounts deducted earlier are taxed in the year of default, if the house is sold within five years from the end of the year in which possession was obtained, or a life policy is ended before two years' premiums are paid (section 80C(5)).

Deduction under section 80D

An individual or a Hindu undivided family may deduct medical insurance premium and certain health payments made in the previous year out of income chargeable to tax:

1. Self, spouse and dependent children: premium, contribution to the Central Government Health Scheme or another scheme the Central Government notifies, and payments for preventive health check-ups, up to ₹25,000; the limit is ₹50,000 where the premium is paid to insure the health of a person in this group who is a senior citizen (section 80D(2)(a) and (4)).
2. Parents: premium and preventive health check-ups, a further ₹25,000; ₹50,000 where the premium insures the health of a parent who is a senior citizen (section 80D(2)(b) and (4)). Parents-in-law, brothers and sisters are not covered.
3. Medical expenditure on a senior citizen with no health insurance: up to ₹50,000 for the assessee and family, and up to ₹50,000 for parents, within the same ₹50,000 ceiling per group (section 80D(2)(c) and (d) and the provisos).
4. Preventive health check-ups: within the above limits, up to ₹5,000 in all (section 80D(2A)).
5. Mode: any mode other than cash, except for preventive health check-ups, which may be paid in cash (section 80D(2B)).
6. Hindu undivided family: premium on any member up to ₹25,000 (₹50,000 where the premium insures a member who is a senior citizen, section 80D(4)), and medical expenditure on an uninsured senior citizen member up to ₹50,000, the two together not exceeding ₹50,000 (section 80D(3) and its second proviso).

A senior citizen here is an individual resident in India who is sixty or older at any time during the relevant previous year (Explanation to section 80D; section 80DDB defines the term in the same words). The most an individual can claim is ₹1,00,000 (₹50,000 for each group), where in each group the premium insures a senior citizen, or the medical expenditure is on an uninsured senior citizen.