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

Hint:

Remember the golden rule of Section 56(2)(x): Gift from Relative = Generally Exempt Gift from Non-Relative exceeding ₹50,000 = Taxable This distinction is frequently tested in Income Tax examinations.

Answer 1

The Correct Option is A

Step 1: Read the facts.
Under Section 56(2)(x) of the Income-tax Act, 1961, a person receives a sum of money without consideration from someone who is not a relative, and the amount is above the prescribed limit. We must find the correct tax position.

Step 2: Understand the purpose of the provision.
Section 56(2)(x) was added to stop tax avoidance through disguised gifts. It brings large gifts received from non-relatives into the tax net so people cannot escape tax by calling income a gift.

Step 3: Apply the threshold.
When an individual receives a sum of money without consideration from a non-relative and the total amount exceeds 50,000 rupees, the whole amount becomes taxable.

Step 4: Find the head of income.
Such a receipt is taxed under the head Income from Other Sources. This is the catch-all head for incomes not covered elsewhere.

Step 5: Check the wrong options.
Option (B) is wrong because the receipt is not automatically exempt. Option (C) is wrong because the section specifically taxes such gift-like receipts and does not treat them as exempt capital receipts. Option (D) is wrong because the rule applies whether the money is received in cash, cheque or bank transfer. Note that gifts from specified relatives, or on occasions like marriage, can be exempt, but here it is from a non-relative.

Step 6: Conclude.
So money received without consideration from a non-relative beyond the limit is taxable under Income from Other Sources.
\[ \boxed{\text{It is taxable under the head 'Income from Other Sources'.}} \]