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: Understand the situation.
A person receives a sum of money for free, that is without giving anything in return, from someone who is not a relative. The amount is more than the limit set by law. The question asks how this is treated under Section 56(2)(x) of the Income-tax Act, 1961.

Step 2: Know why this rule exists.
Section 56(2)(x) is an anti-abuse rule. It stops people from passing off black money as gifts. So it taxes large gifts received from non-relatives.

Step 3: Recall the limit.
If the total money received without consideration from a non-relative in a year is more than fifty thousand rupees, then the whole amount becomes taxable in the hands of the person who got it.

Step 4: Find the correct head.
This taxable amount falls under the residuary head called Income from Other Sources. This is the basket head for income that does not fit the other heads.

Step 5: Remove the wrong options.
It is not taxable only if in cash (option 1), it is not fully exempt (option 2), and it is not a non-taxable capital receipt (option 4). The law clearly taxes it.

Step 6: State the answer.
So such a receipt is taxable under the head Income from Other Sources. \[ \boxed{\text{It is taxable under the head 'Income from Other Sources'.}} \]