Taxation of gifts & Inherited property.
31 Oct 2022
Generally There’s a Common Assumption exists in the minds of Taxpayers that Gifts received are Not Taxable. Let’s see the Taxability of Gifts received.There are two kinds of Gifts
1) Monetary Gifts ( Includes Cash,Bank Transfer , Cheque etc)
2) Non - Monetary Gifts ( Movable and Immovable Property).
Also there are two ways of Receiving Gifts,
Gifts received without Consideration.
Gifts received With Consideration.
Taxability of Various Gifts Received
Any Value of Money Received in a year without Consideration is more than ₹ 50,000/- then The entire amount received is Taxable.
If Received any Immovable Property ( Land,building etc)
Without Consideration If Stamp duty value is more than ₹ 50,000/- then Value of property as per The stamp duty is taxable.
With Inadequate Consideration Stamp duty value exceeds consideration by ₹ 50,000/- then Stamp duty value less consideration received is Taxable.
If Received any Property other than Immovable Property,
Without Consideration If Fair Market Value (FMV) is more than ₹ 50,000/- then total FMV is Taxable
With Inadequate Consideration If FMV exceeds consideration by ₹ 50,000/- then FMV less consideration received is Taxable.
Exemptions Even though gifts are Taxable under various categories discussed as earlier there are exemptions for the Gifts Received by Individual and Hindu Undivided Family ( HUF )
● Money Received from Relatives.
Relatives for this Purpose is taken into account below mentioned persons,
i. In case of an Individual
a.Spouse of the individual,
b.Brother or sister of the individual,
c.Brother or sister of the spouse of the individual,
d.Brother or sister of either of the oldsters of the individual,
e.Any lineal ascendant or descendent of the individual,
f. Any lineal ascendant or descendent of the spouse of the individual,
g.Spouse of the persons referred above from to in (b) to (f).
ii. within the case of HUF, any member of the HUF.
● Money received on the occasion of the wedding of the individual from any person.
● Money / Property received under will/ by way of inheritance.
● Money received in contemplation of death of the payer or donor.
● Money received from an area authority.
● Money received from any fund, foundation, university, other institution ,
hospital or other clinic , any trust or institution .
● Money received from or by a trust or institution registered under section 12A, 12AA or
● Money received by any fund or trust or institution any university or other educational
institution or any hospital or other clinic .
● Received Distribution of Capital Assets of HUF to any member of HUF.
Taxation of Inherited Property
When a person has expired, their property including the ancestral property is passed on to their legal heirs who gains the legal ownership and possession of the property. This type of property is treated as Inherited property.A person may get the inherited property by the way of Will or inheritance.This transfer is treated as a gift for the person receiving of Property.However, the Income Tax Act, 1961, specifically excludes the transfer of assets under will or inheritance from the purview of gift tax. Accordingly, the law does not provide for taxation of property received by way of inheritance.
Tax on Income of Inherited Property
Even though the transfer of property under inheritance is not taxable any income arising on such property is taxable in the hands of the person received and should declare the same in their Income Tax Return.
Let’s Understand this with an Example;
Mr. B is Son of Mr.A, who is owner of a property generating Rental income of Rs 2,40,000 /- anually. The same is offered as rental income by Mr.A in his ITR. After Mr.A is deceased and as a legal heir Mr. B had the possession of property. Such transfer does not attract any tax. However, Mr.B has to show the Rental income generated from the Inherited property in his ITR.
Tax on Subsequent sale of Inherited Property
If the person Receiving Inherited property intended to sell the property then any Capital Gain or loss arising from such sale has to be disclosed in their Income Tax Return. The Holding Period of Property for the purpose of determining whether sale is LongTerm or Short Term is the Period Of property held by the legal heir(New owner) and the deceased( Original owner).
Let’s Understand this with the same Example as mentioned above;
After few years from receiving the property Mr. B is intended to sell the property and on such sale Capital Gain will arise. Such Capital gain is taxable in hands of Mr. B only. The Period of Holding is calculated for the purpose of determining capital gain as Short Term or Long Term is including possession of property in hands of both Mr. A and Mr. B.