- 18-Apr-2025
- Education Law
In India, gifting real estate is possible without incurring gift tax in certain conditions. While there is no gift tax under the Income Tax Act anymore, the transaction still has tax implications, particularly when it comes to stamp duty, capital gains tax, and compliance with Section 56(2). The key factor is understanding the circumstances under which real estate gifts can be transferred tax-free and the legal formalities required to ensure a smooth transfer.
Under Section 56(2) of the Income Tax Act, gifts received by a relative are exempt from gift tax. Relatives, as defined by the Income Tax Act, include parents, children, siblings, and spouses, among others.
If a person gifts real estate (land or property) to a relative, no gift tax will be levied, making the transaction tax-free for the recipient.
Even though gift tax is not applicable in India, stamp duty must still be paid when transferring real estate. The stamp duty is payable based on the market value of the property and the state in which the property is located. Each state in India has its own stamp duty rates.
The donor or recipient is responsible for paying stamp duty during the transfer, and the gift deed must be registered to ensure its legality.
If the property is gifted to a relative, some states may offer lower stamp duty rates compared to other transfers.
While gifting real estate is not subject to capital gains tax at the time of the gift, if the recipient later decides to sell the gifted property, they may be subject to capital gains tax.
The capital gains tax depends on whether the property is classified as short-term or long-term, which depends on the holding period.
The cost of acquisition for the recipient is considered to be the same as the donor's cost of acquisition, meaning the capital gains tax is calculated based on the donor’s purchase price when the property is later sold.
Agricultural land in some cases may not be subject to capital gains tax if it is gifted, depending on the location and whether it is considered an agricultural property under the relevant tax provisions.
If the real estate is a residential property, section 10(38) of the Income Tax Act can apply in the case of long-term capital gains, and exemptions like indexation can be applied, which could reduce the tax burden when the property is later sold.
No gift tax applies to real estate gifts if the recipient is a relative as defined by law.
The gift deed should be registered, and the transfer must be done following the proper legal procedures to be valid under the Registration Act.
The real estate property must be in the form of immovable property like land, houses, flats, or agricultural property, and no tax is levied if gifted under the right conditions.
A gift deed is a legal document that must be executed and registered with the local sub-registrar. While the gift deed does not require any monetary exchange, it is essential to have the property transferred legally through a registered gift deed.
If the gift deed is not registered, the transfer may not be legally recognized, leading to complications in ownership rights.
A parent gifts a residential property valued at Rs. 50 lakh to their child.
Since the recipient is a relative, no gift tax will apply under Section 56(2), and the gift is tax-free.
However, the parent must pay the applicable stamp duty as per the local laws for gifting real estate.
If the child later sells the property, they will be liable to pay capital gains tax based on the original cost of acquisition of the property (the parent's purchase price) and the selling price.
A father gifts agricultural land to his sibling. The transaction is exempt from gift tax because it falls under the category of gifts to relatives.
The recipient is required to pay stamp duty based on the value of the land as per state-specific rates.
If the agricultural land is later sold by the recipient, it will be subject to capital gains tax if it has been held for less than 36 months.
In India, real estate gifts can be transferred tax-free under specific conditions, particularly when the gift is made to a relative. While gift tax does not apply, stamp duty must be paid, and the gift deed must be registered. However, capital gains tax may be applicable when the gifted property is later sold by the recipient, based on the holding period and cost of acquisition. To avoid complications, it is crucial to adhere to the legal procedures and pay the necessary taxes like stamp duty during the transfer.
Answer By Law4u Team
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