Section 56 of Income Tax Act, 1961 (ITA) - Income From Other Sources

Section 56 of the Income Tax Act 1961 deals with the taxation of Income From Other Sources, which are the incomes that do not fall under any other specific income head i.e., salary, house property, capital gains, and PGBP. The incomes that cannot be categorised under these heads of income are categorised under the head "Income From Other Sources". 

Read this article to learn about various income which fall under the head Income From Other Sources and the taxation of such incomes.  

Overview of Incomes Classified Under Other Sources

The following table provides an overview of the incomes that are generally taxable under the head ‘Income From Other Sources’ and their taxation:

Tax On Gifts Received Under Section 56(2)(x)

Gifts received from a non-relative in the form of cash and cash equivalents, monetary gifts, property (movable & immovable), or in-kind are taxable under the head “Income From Other Sources” if the aggregate value exceeding Rs. 50,000 in a financial year. However, gifts received from relatives and gifts received during the occasion of marriage are completely exempt irrespective of their value.   

The aggregate value of gifts received during the financial year is taken into account for taxability, and it is not based on individual gifts. For example, Mr. A received gifts worth Rs. 15,000 on April 10, 2024, and Rs. 40,000 on July 16, 2024, from his friends. In this case, the entire Rs. 55,000 is taxable, as the aggregate value of gifts exceeds Rs. 50,000 during a financial year.

Similarly, a cash gift from an employer is fully taxable in the hands of the employee under the head of salaries. 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) is chargeable to income tax and stamp duty implications. 

Any immovable property, which could be land and buildings or both, received without consideration (without paying anything for it) has a stamp duty value (the value adopted by the authorities for payment of stamp duty) exceeding 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 difference between the stamp duty value and the consideration of such property exceeds 10% of the consideration and such a difference is more than Rs. 50,000, then the stamp duty value in excess of the consideration will be taxable as income in the hands of the buyer.

Example:

Mr A is planning to purchase property for a consideration of Rs. 50,00,000. Take two scenarios with a Stamp value of Rs. 54,00,000 and a Stamp value of Rs. 60,00,000. Is there any tax liability on the above transaction

Since in Scenario 2, the difference between the Stamp value of the property and the consideration is more than 10% of the consideration such difference amount will be taxable under the head Income from Other sources.

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, if the aggregate FMV of which is greater than Rs 50,000, the aggregate FMV falls under the tax ambit. However, for a consideration that is less than the aggregate FMV of the property by an amount exceeding Rs 50,000, the entire excess fair market value will be taxable.

The main objective of taxing transactions without consideration or inadequate consideration is to curb black money usage. This is enabled by taxing the recipient for the difference between the asset's actual value and the consideration paid for it.

Exemptions Under Section 56 (2)(x)

The following exemption is provided in Section 56(2)(x), where transactions that take place without consideration or inadequate consideration will not be taxable.

1. Money or property received from a relative as a gift. In case 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 in the case of an individual: 
   1. Spouse of the individual, 
   2. brother/sister of the individual, 
   3. brother/sister of the spouse of the individual, 
   4. brother/sister of either of the parents of the individual, 
   5. any blood relative/offspring (Lineal ascendant or descendant of the individual)
   6. any blood relative/offspring of the spouse (Lineal ascendant or descendant of the spouse of the individual)
   7. spouse of the individuals referred to above. 
   8. 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.

2. Further, gifts that a couple receives during their marriage are non-taxable. At the same time, gifts that an individual gets on occasions such as birthdays or anniversaries remain taxable.​​
3. 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.
4. Sale of movable property, Personal effects other than shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures, works of art or bullion are not taxable. Thus, if you sell personal effect movable in nature like Vehicle, Furniture, and Fixtures are not taxable

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 of income is exempt from tax) of the ITA
• Fund/foundation, university/other educational institution, hospital/other medical institution, and  trust/institution referred to in Section 10(23)
• Trust/institution that is registered under Section 12A, Section 12AA or Section 12AB
• Fund/ trust/institution, university/other educational institution 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 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 money received from any other person.

Disclosure In ITR Form

Details of income taxable under Section 56(2)(x) due to inadequate consideration on receipt of movable or immovable property must be declared by the recipient in Schedule OS of your ITR 2 or 3.

Other Heads Of Income:

1. Income From Salaries
2. Income From House Property
3. Profits And Gains Of Business & Profession
4. Capital Gains