Have you ever gifted or planned to gift a property to your family or relatives? If yes, the tax rules may directly apply to you. The tax treatment of gifts, particularly immovable property, remains a closely watched area under India’s income-tax framework.
According to provisions under Section 56(2)(x) of the Income-tax Act, certain receipts are classified as 'deemed income' when the value of benefits exceeds Rs 50,000 in a financial year. As per government tax guidance, the rule applies regardless of who the taxpayer is, and covers transactions where the donor or donee may be an individual, partnership firm, LLP, company, AOP, BOI, co-operative society or artificial juridical person, whether resident or non-resident.
Three Categories of Taxable Receipts
The framework sets out three broad categories of taxable receipts:
- Receiving monetary benefits without consideration
- Receiving immovable property without consideration or for inadequate consideration
- Receiving specified movable properties without consideration or for inadequate consideration
Immovable Property Transfers
On immovable property, the IT department notes that deemed income may arise where property is transferred without consideration and the stamp duty value exceeds Rs 50,000, in which case the stamp duty value becomes taxable income. It further states that where property is transferred for inadequate consideration, tax is triggered when the difference exceeds the higher of Rs 50,000 or 10% of the consideration, with valuation determined on the basis of stamp duty value.
Threshold Application
The Rs 50,000 threshold is applied differently across transactions. In monetary transfers, the limit is applied cumulatively over the entire financial year, rather than on a per-transaction basis, while for immovable property it is assessed on a per-transaction basis.
Movable Properties Covered
The provisions also extend to specified movable properties such as shares, securities, jewellery, artworks, bullion and virtual digital assets, where receipt without adequate consideration may attract tax if thresholds are crossed.
Exemptions Available
However, the income tax department provides exemptions in specific cases, including:
- Marriage of the individual
- Will or inheritance
- Contemplation of death
It further defines 'family' in this context as including spouse, children, parents, brothers and sisters wholly or mainly dependent on the individual, a classification relevant for determining exemption eligibility.
Valuation Rules
Property-related gifts are assessed based on valuation rules rather than transaction price alone, highlighting that stamp duty valuation is central to determining tax liability in cases of immovable property transfers.
