Is there Any Income Tax Liability in India on Property Gifts to Relatives..?

Question:

Is there Any Income Tax Liability in India on Propert Gifts to Relatives..?

Answer:

Ms. Saroj Maniar, CA

There are no tax implications at the time of purchase of a property. However, the Finance Act 2013 has introduced a provision with effect from 1 June 2013 to withhold tax at source on behalf of the seller at 1 % if the property is acquired from an Indian resident for a value exceeding Rs. 50 lakh.

When you sell the property, income tax will be levied on the capital gains. The rate of tax would depend on whether the gains are long term or / short term.

Long-term capital gains (LTCG) are computed by reducing the indexed cost of acquisition &  improvement from net sales proceeds.

Short-term capital gains (STCG) are computed by reducing the cost of acquisition or improvement from net sales proceeds.

Net sales proceeds represent sales proceeds as reduced by expenses in connection with the sale such as brokerage and legal fees.

The tax liability on STCG is as per the regular tax slab rates (10 %, 20 %, 30 %), whereas the tax liability on LTCG is 20 %; each to be increased by applicable surcharge & cess.

The income tax treatment would remain the same irrespective of whether the sales proceeds are credited to you NRO account, NRE account or /  directly repatriated.

For the purpose of income tax, the owner of the property will be considered as the person who has purchased it - the person who has contributed the funds for acquiring the same.

Hence, if you have contributed the funds for acquisition of the property, you will be considered the owner for the purpose of determining income from house property annually & capital gains when you sell the property.

If you would like your son to be the owner, you may consider gifting it to him.

As per the present tax provisions, there is no income tax liability in India on gifts to relatives as defined for that purpose. However, if your son is a minor, the provisions relating to clubbing of income would be attracted and the income from the property, if any, would be clubbed in your income.

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