- 18-Apr-2025
- Education Law
In India, the tax treatment of gifting property (such as land, house, or other assets) to family members is governed by the Income Tax Act. While gifts to family members are generally exempt from gift tax, there are certain tax implications related to capital gains tax when the gifted property is later sold. Additionally, there are documentation and reporting requirements to ensure compliance with tax laws.
Under the Income Tax Act, gifts received from relatives (including family members) are exempt from tax.
The term relative includes spouses, children, parents, siblings, grandparents, and other members of the family as defined under the Act.
No gift tax is levied on property gifted to family members, regardless of the value of the property.
While there is no tax at the time of gifting the property, capital gains tax will apply if the recipient sells the gifted property in the future.
The recipient is liable to pay capital gains tax on the difference between the sale price and the cost of acquisition (the price at which the donor originally bought the property).
If the recipient sells the property after holding it for more than 2 years, long-term capital gains (LTCG) tax applies. If the property is sold within 2 years, short-term capital gains (STCG) tax applies.
For capital gains tax purposes, the cost of acquisition of the gifted property for the recipient will be the same as the cost at which the donor acquired it. This is crucial in calculating capital gains when the property is sold.
In other words, the holding period and purchase price of the donor will carry over to the recipient.
If the property is residential, and the donor gifts the property to a close relative, there are no immediate tax liabilities on the gift. However, if the property is sold in the future, the recipient may need to pay capital gains tax based on the sale price.
If the recipient holds the property for more than 2 years, they will be eligible for long-term capital gains taxation, which comes with certain exemptions and deductions under Section 54 (if reinvested in a new residential property).
When gifting property, stamp duty and registration fees may apply, depending on the value of the property and the state laws. In most cases, gifting property to family members involves lower stamp duty rates compared to selling property.
The recipient may need to bear these costs, which are typically paid at the time of registration of the gift deed.
Since gifts to family members are tax-exempt, there is no need for the recipient to report the gift in their income tax return. However, the donor may need to execute a gift deed to formalize the transfer of property.
For non-cash gifts (such as property), it is advisable to maintain proper documentation, including the gift deed, and evidence of the donor’s cost of acquisition of the property.
Example 1: A father gifts a piece of land worth ₹50,00,000 to his son. The gift is exempt from gift tax since the father and son are considered relatives under the Income Tax Act. However, if the son sells the land in the future for ₹60,00,000, the capital gain of ₹10,00,000 will be subject to capital gains tax. The holding period and the purchase price of the land for the father will be used to calculate the capital gains.
Example 2: A mother gifts a house valued at ₹80,00,000 to her daughter. The gift is tax-free at the time of transfer. If the daughter decides to sell the house after 3 years for ₹1,20,00,000, she will be subject to long-term capital gains tax on the profit made, i.e., ₹40,00,000, subject to exemptions under Section 54 if the proceeds are reinvested in a new residential property.
Example 3: A brother gifts his younger sibling a commercial property worth ₹30,00,000. The gift is exempt from tax. However, if the sibling sells the property after 1 year for ₹35,00,000, short-term capital gains tax will apply on the ₹5,00,000 profit made, since the holding period is less than 2 years.
In India, gifting property to family members is tax-free under the Income Tax Act. There are no immediate gift tax implications, and gifts between family members are not subject to taxation. However, capital gains tax will apply if the recipient decides to sell the property in the future, based on the donor’s cost of acquisition and holding period. It is advisable for both the donor and recipient to maintain proper documentation, including a gift deed, to formalize the transaction and ensure compliance with tax laws.
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