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Tax angles to gift of property that you will love

As you are aware, property is an asset that is extremely dear to Indians. And, it has almost become a ritual or a custom to pass on the same to one's children. This is done either in the will when one passes away or even earlier as a gift.

Given that the most-hated taxman is lurking in every corner, you will find his dreaded presence here to.

However, you would be happy to note that, when it comes to gift of property, he is extremely generous.

When you receive any property as a gift, you are getting something for which you have paid nothing. From taxation perspective, therefore, this should be treated as your income from other sources and taxed accordingly.

But the good news is that this inflow to your account would not be added to your total income for taxation purposes, provided you receive it
- from any of your close relatives, or
- on the occasion of your marriage, or
- in contemplation of death of the giver.

In other cases, you would be liable to pay tax. And this tax would be assessed and payable on the ready reckoner rates fixed by the authorities for calculation of minimum stamp duty on transfer of property.

Further, for the property giver too, there would be no tax implications. In other words, there would neither be any tax payable nor any loss allowable to him upon this transfer of property to you, the receiver.

By the way, this is not the end of taxman's benevolence.

What would be your capital gains if and when you sell this gifted property?

Logically, you paid nothing to acquire this property i.e. your cost of acquisition is Nil. So, does it mean that now the entire sales proceeds, that you receive, would become your capital gains?

No. The cost and year in which the giver had first acquired the property, becomes your cost and year of acquisition too. Hence you can deduct the indexed cost, as if you had bought the property initially, from the sale consideration. Only this net amount is your capital gains.

However, suppose this was the other case, where you had to pay tax at the time of receiving the gift. In such cases, even though you didn't pay anything to acquire the property, the
ready reckoner rate at which you were taxed becomes your cost of acquisition. This can be deducted from the sales value to arrive at the capital gains.

As regards who all are considered as close relatives and other provisions of Gift Tax, you can refer back to my earlier blog post on the subject viz. ignorance of Gift Tax can prove fatal.

(Important: Of course, while you may be free from the clutches of income tax, there could be stamp duty or such other charges applicable on gifts, depending on the respective State's rules and regulations.)

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