House Property Received as Gift is Subject to Taxation: Here is Why
When a house property is gifted to a son, daughter, son-in-law or daughter-in-law by a parent, the person receiving the gift does not have to pay income tax on it under the exemption under Section 56(2)(x) of the Income Tax Act, 1961, as such transactions are categorised as gifts from relatives. But the treatment of the income earned from that property depends on the person receiving it.
If the house property is gifted to a son or daughter, the rental income earned on it is taxable in their hands as they become the legal owners. On the other hand, the clubbing provision under sections 64(1)(iv) and 64(1)(vi) can be applicable if the property is sold without any consideration to a spouse or daughter-in-law. In such a case, the person transferring the property (transferor) can be treated as the owner for income tax purposes. This means that if the rent income is earned from such house property, the transferor will be liable to pay income tax on it instead of the transferee.
This provision can also be applicable in situations where the gift is given to a minor son or minor daughter under section 64(1A) and where the transfer is for insufficient consideration. When the gifted property is transferred to someone else, the buyer will be liable to pay the income tax. It is considered that the cost at which the parent originally bought the property is the acquisition cost. Also under Explanation 1(i)(b) to Section 2(42A), the holding period of the parent is also added for determining the nature of the capital asset.
Immovable Property Received as a Gift
Immovable property received by an individual or Hindu Undivided Family (HUF) without any consideration is subject to tax if:
- The immovable property (land or building or both) is received by an Individual or HUF.
- The stamp duty of that immovable property received without consideration is more than Rs 50,000.
- The immovable property is a capital asset as per section 2(14) for that individual of HUF.
However, in the following cases, the immovable property received by an individual or HUF as a gift will not be taxed:
1. Property is gifted by Relatives: ‘Relative’ means:
- 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 parents of the individual;
- e. Any lineal ascendant or descendant of the individual;
- f. Any lineal ascendant or descendant of the spouse of the individual;
- g. Spouse of the persons referred to in (b) to (f).
2. For HUFs, any member thereof.
3. Property received on the marriage of the individual.
4. Property received under the will or through inheritance.
5. Property received during the death of the donor.
6. Property received from a local authority as per section 10(20) of the income tax Act.
7. Property received from a fund, foundation, university, other educational institution, hospital or other medical institution, or any trust or institution as per section 10(23C). This exemption is not applicable from AY 2023-24 in case the property is received by a specified person as per section 13(3).
8. Property received by any fund/trust/university/other educational institution/hospital/other medical institution as per section 10(23C)(iv)/(v)/(vi)/(via).
9. Property transferred under specific clauses of Section 47, including clauses (viiac)/(viiad)/(viiae)/(viiaf) of section 47.
10. Property received from an individual by a trust which is introduced only for the benefit of a relative of the individual.
Gifts Received on the Occasion of Marriage
If the Gift including an immovable property, received without consideration is received on the occasion of the marriage of an individual, it is not subject to taxation.
Immovable Property Received Without Consideration
Immovable property received as a gift without any consideration from a relative is not subject to taxation. Taxpayers should note that a friend is not considered as a relative. Therefore, if such a gift is received by a friend, then it will be charged to income tax.
Immovable Property Received for Less Than Stamp Duty Value
When an immovable property is received by an individual of HUF for less than its stamp duty value, then income tax would be chargeable on it if the following conditions are met:
- The immovable property is received by an individual or a HUF.
- The immovable property is a capital asset as per section 2(14) for that individual of HUF.
- The property is bought for a consideration, but it is less than the stamp duty value, and the difference is more than the higher of Rs 50,000 and 5% of the consideration.
