Question

According to Section 56(2)(x), of the Income-tax Act, 1961, if an individual receives a sum of money, without consideration, from a person other than a relative, and the amount exceeds the prescribed limit. What is the correct legal position?

• A. It is taxable only if received in cash.
• B. It is fully exempt from tax.
• C. It is taxable under the head 'Income from Other Sources'.
• D. It is treated as a capital receipt and is not taxable.

Hint:

Section 56(2)(x) = The "Gift Tax" trap. Any non-relative "gift" over ₹ 50,000 is fully taxable as "Income from Other Sources." Always check your relative status before accepting gifts!

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
Section 56(2)(x) of the Income-tax Act is a "deeming provision" (an anti-abuse provision) designed to prevent the laundering of unaccounted money through gifts.

Step 2: Detailed Explanation:
- This section provides that if an individual receives any sum of money exceeding ₹ 50,000 during a financial year without consideration from a non-relative, the entire amount is taxable as income in the hands of the receiver.
- This income falls specifically under the residuary head of income: "Income from Other Sources."

Step 3: Final Answer:
Such receipts are taxable under 'Income from Other Sources', making (C) the correct position.

Answer 2

Section 56(2)(x) is an anti-abuse provision that taxes certain gifts received without consideration, and the question asks how such a receipt from a non-relative, above the prescribed threshold, is actually taxed.

1. Option (A) - Taxable only if received in cash: Section 56(2)(x) is not limited to cash; it applies equally to money received by cheque, bank transfer, or any other mode, as well as to certain movable and immovable properties received without consideration. Limiting the rule to cash misstates its scope.
2. Option (B) - It is fully exempt from tax: This is the opposite of what the provision does; far from exempting such receipts, Section 56(2)(x) specifically brings them into the tax net once the threshold is crossed.
3. Option (C) - It is taxable under the head 'Income from Other Sources': Once the aggregate sum received without consideration from non-relatives in a year exceeds the prescribed limit, the entire amount becomes taxable, and it is charged under the residuary head, Income from Other Sources, since it does not fit any of the specific heads like salary or business.
4. Option (D) - It is treated as a capital receipt and is not taxable: Section 56(2)(x) exists precisely to override the general presumption that a gift is a non-taxable capital receipt; by deeming it as income once it crosses the threshold, the provision brings it squarely into taxable income rather than leaving it untaxed.

Since the provision both taxes the excess sum and specifically routes it to the residuary head, only one option reflects the true position.

Hence, the correct answer is It is taxable under the head 'Income from Other Sources'.