The taxability of gifts is a popular and frequently asked subject among taxpayers. In this article, you’ll learn about the numerous rules relating to the ‘TAX ON SALE OF PROPERTY RECEIVED AS GIFT’ received by a person or a Hindu Undivided Family (HUF), such as a sum of money or property obtained without consideration or a circumstance in which the property is bought for insufficient consideration.
Gifts can be classified in the following ways in terms of taxation:
- A monetary gift is a sum of money given without expecting anything in return.
- ‘Gift of moveable property’ refers to a specific movable item received without consideration.
- Movable property received at a lower price (i.e., for insufficient consideration) is known as the movable property received for less than its fair market value.’
- Immovable property obtained without payment is referred to as a “gift of immovable property.”
- Immovable properties purchased at a discount (i.e., for insufficient consideration) are referred to as “immovable property received for less than its stamp duty value.”
If the stamp duty on immovable land or property, received without any consideration exceeds 50,000 in a financial year then the gifted property is taxed in India. However, if any gifted property is derived from local authorities or any fund, foundation university, educational or medical institutions, charitable funds, etc. it is exempted from gift tax irrespective of the value of stamp duty.
How to calculate tax on the sale of property received as gift:
As per the provisions of Section 56(2) of the Income Tax Act, gifts are taxed in India in the following circumstances:
- If the value of a gift exceeds 50,000 in a fiscal year and is given without consideration, it is completely taxable.
- Any immovable property, such as land or a structure, received for more than 50,000 without consideration in a fiscal year is additionally taxable at the stamp duty value.
- For properties other than immovable property such as jewelry, shares, drawings, etc. received without any consideration and exceeds 50,000.
- If the property other than the immovable property is received with consideration and reasonable value exceeds 50,000.
as per the provisions of Section 56(2) of the Income Tax Act, a gift in any form received from relatives including spouse, brother or sister of parents, brother and sister of self and spouse, parents in law, any lineal ascendant or descendant of self or spouse is not taxable irrespective of the amount of gift.
You do not have to pay gift tax if you have received cash or if the stamp duty value on immovable property is less than 50,000. In cases, where the property is received from any medical or educational organization, charitable funds, or local authorities, or the property is inherited, or gift received from family members you can file these gifts as ‘Income from exempt sources’ while filing Income Tax Returns.
In India, property obtained from a family member, a local government, a charitable fund or non-governmental organization, medical or educational institutions, or on events such as property inheritance, marriage, or the anticipation of death is not taxable. If the value of the gift is below 50,000, received from any person is also tax-free.
The basic step to calculate tax on the sale of property received on inheritance or as a gift:
As we all know that capital gains tax is not applicable to a gifted or inherited property as there is no sale, only a transfer of ownership. Capital gains tax will be applicable only if the person who inherited the property or assets decides to sell it. the procedure to calculate the capital gain tax is given below:
Short Term Capital Gains on Gifted properties are calculated as below:
Step: total sale price (full value of consideration)
less Expenses related to sale /transfer
less cost of purchase (acquisition cost)
less cost of improvement
Equals to Net short term capital gain
Long Term Capital Gains on Gifted properties are calculated as below:
sale of inherited/gifted property & calculation of long-term capital gains
total sale price (full value of consideration)
less expenses related to sale/transfer
less Indexed cost of purchase
less indexed cost of the improvement (if any)
Gross long term capital gains
Less Exemptions u/s 54 series
Equals to Net long term capital gains
The Long-Term Capital Gains calculation is quite similar to Short Term Capital Gains. The only differences are that you are allowed to deduct the Indexed Cost of purchase/Indexed Cost of Improvements from the value of consideration and also claim certain exemptions to save tax on long-term capital gains.
Frequently Asked Questions
When a person inherits the property or receives it as a gift, it is not taxable to the person who receives it. The capital gains on the sale of this gift of property by the inheritor or recipient are taxable to the inheritor.
The following is the formula for calculating short-term capital gains on gifted property: STCG = (Total Sale Price) – (Acquisition Cost) – (Directly Related Sale Expenses) – (cost of improvements).
The value of all gifts received by a person during a year is fully exempt under income tax laws, as long as the total value of such gifts does not exceed Rs 50,000 in a year.