Property gifted on marriage is not taxable

Source: BL :PARIZAD SIRWALLA :Nov 20,2011

My father would like to dispose of a piece of property purchased in the year 1994. In this connection, please clarify on the following points.

1) If the total amount received on sale (Guideline value) is gifted to me, whether Capital Gains tax is exempt to my father or the gift is to be made only after paying the Capital gains.

2) Also please clarify about the Gift tax payable and whether I would be taxed as per I-T act on gift of these proceeds also.

— Shyam Sunder V R

 Under the Income tax Act, 1961 (“the Act”), gain, if any, arising from sale of the property is taxable as capital gains. As the said property has been held for more than 36 months since purchase, the gain arising from its sale would be treated as Long Term Capital Gains (LTCG).

To arrive at LTCG, the purchase cost may be indexed based on cost inflation index published by the Tax Department.

LTCG is taxed at a flat rate of 20.6 per cent (including education cess). An individual may be able to claim an exemption from taxable LTCG under Section 54/Section 54F/Section EC of the Act, only if he invests in a new residential house /specified bonds, subject to fulfilment of prescribed conditions. Accordingly, your father would need to pay capital gain tax on sale of the property which is owned by him, even if he gifts the sale proceeds to you.

Gift tax has now been abolished. As per Section 56 of the Act, any money received by an individual from any person during any financial year (FY) without consideration, the aggregate value of which exceeds Rs 50,000/- is taxable under the head ‘Income from other sources'. However, an exemption is available if the money is received from a relative which includes amongst others, any lineal ascendant or descendant of the individual.

Accordingly, the money received by you from your father would not be taxable in your hands. Any subsequent investment made by you out of that money which yields income, would be taxable in your hand, if any, assuming you are a major assessee.

I sold a housing site in September 2009 for Rs 30 lakh (owned by me for 20 years) and bought an apartment for Rs 32 lakh in January 2010. I have claimed deduction U/s 54F in my IT returns filed for AY 2010-11 and not paid any capital gains tax. I have only one other house which I live in.  I gifted the apartment (bought in January 2010) to my daughter for her marriage in June 2010. Now, my daughter wants to sell this apartment for Rs 32 lakh. What is the income tax implication for my daughter and myself? My auditor says I need not pay any tax. Is he correct? 

— Narasimhah Kodur

The provisions of Section 54F of the Act stipulate that exemption claimed under said section, gets revoked if the individual “transfers” the new residential property purchased, within a period of three years from the date of purchase.

As you have gifted the new residential property to your daughter without consideration, this transaction would not be regarded as a “transfer” for the purpose of capital gains and would not therefore attract capital gain tax implications in your hands.

Tax implications for daughter:

As per Section 56 of the Act, any property received by an individual from any person during any FY without consideration, the stamp duty value of which exceeds Rs 50,000/-, is taxable under the head ‘Income from other sources'.

However, an exemption is available if the property is received from a relative which includes, amongst others, any lineal ascendant or descendant of the individual/on the occasion of marriage.

Accordingly, the property gifted to your daughter without consideration should not be taxable in the hand of your daughter. In case, your daughter proposes to sell the property, gains, if any, arising from the sale should be taxable as capital gains in her hands.

As the property has been acquired by her under a gift, the period of holding for her shall be counted from the date of acquisition of property by you i.e. in January 2010.

Assuming that your daughter proposes to sell the property during the FY 2011-12, the resultant capital gains shall be termed as Short Term Capital Gains (STCGs) as the property would be held for less than 36 months from the date of acquisition.

Capital gains should be computed as difference between the net sales proceeds (i.e. after reducing transfer charges such as commission/ brokerage) and the ‘cost of acquisition'.

The cost of acquisition in her case shall be the cost for which the property was acquired by you in January 2010.

However, please note that clubbing provisions may be attracted where it is established that income from such property transferred for inadequate consideration, is for you or your spouse's immediate/deferred benefit.