Whether creation of a private trust with Rs 10 lakhs settled by settlor will attract tax u/s 56 of IT Act?



A female wish to create a private trust with a settlement of Rs 10 lakh from her capital for the benefit of her niece. Whether receiving Rs 10 lakh from the female will attract income tax under the provision of section 56 of the income tax Act (money received without consideration)? Please explain.

Whether creation of a private trust with Rs 10 lakhs settled by settlor will attract tax u/s 56 of IT Act?
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One Reply to “Whether creation of a private trust with Rs 10 lakhs settled by settlor will attract tax u/s 56 of IT Act?”

  1. Gifts are Taxable Only in the Case of Individuals and HUFs
    Under the provisions of Section 56(2)(vi) certain gifts are liable to income tax as “income from other sources”. However, this provision is applicable only for individuals and Hindu Undivided Families (HUFs). Thus, if gift is received by any Trust or A.O.P., then it is not liable to income tax as “income from other sources”. The provision of taxation of gifts became applicable in respect of gifts received on or after 1.9.2004 and before 1.4.2006 if the gift money exceeded Rs. 25,000. From 1.4.2006, this amount has been increased to Rs. 50,000 so that cash gifts and gifts by cheque or bank draft from non-relatives and from non-exempted categories can be fully exempt from income tax up to Rs. 50,000 in aggregate in one financial year.
    Gifts from Relatives are Tax-Exempt
    Importantly, the provisions of the aforesaid Section 56(2)(vi) applicable to the taxation of gifts in excess of Rs. 50,000 in a financial year in the aggregate are applicable for gifts received from non-relatives. Thus, any gift from relatives of any amount during the financial year is completely exempt from tax.

    HMT





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