Festive gifts: I have got a house as gift from my wife's father on Diwali this year. How will the taxes be calculated now?

I have got a house as a gift from my wife's father on Diwali. I haven't invested any money in this immovable asset.  How will the taxes be calculated now?

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The taxability of gifts in India is governed by the provisions of the Income Tax Act. Typically, gifts by individuals are not subject to taxation; however, certain conditions may apply. In India, a gift may take the form of various items of monetary value, such as property (including land, apartments, or houses), money (particularly common during festivals and special events), jewellery (popular for weddings and anniversaries), and art (such as paintings, sculptures, or valuable collectibles). These gifts can be given to family members, relatives, or friends; however, it is important to ensure that the gift is not reciprocal or beneficial to the giver, as such arrangements are not recognized under income tax laws.

When an individual transfers any type of asset, whether movable or immovable, they will be subject to taxes when the asset is sold. The recipient of the gift will also be required to pay capital gains tax when they sell the gifted asset. Inherited or gifted assets that are sold by the taxpayer will result in capital gains that are subject to either short-term or long-term capital gains tax, depending on the length of time the asset was held before being sold.

"Gifts received from specified relatives or on occasions such as marriage are generally exempt from tax. It is essential for both the transferor and the transferee (recipient) to understand the tax implications associated with gifts to ensure compliance with tax regulations and to avoid any unforeseen liabilities," said CA (Dr) Suresh Surana.

Tax implications in the hands of Transferor

As per the provisions outlined in Section 47(iii) of the Income Tax Act, any gift exchanged between individuals is not considered a "transfer" for tax purposes. Starting from the Assessment Year 2025-26, this exemption will specifically apply to gifts made by individuals or Hindu Undivided Families (HUFs). 

"According to the provisions of Section 47(iii) of the Income Tax Act, any gift given by one person to another is not regarded as a "transfer" for tax purposes. Effective from Assessment Year 2025-26, this exemption will be limited to gifts made by individuals or Hindu Undivided Families (HUFs) only. Despite this amendment, individuals continue to benefit from this exemption. As these transactions are not classified as transfers, they remain outside the scope of taxation under the head "Capital Gains." Consequently, such transactions are not subject to capital gains tax," said Surana.

Tax implications in the hands of Transferee (recipient)

If transferor is a relative

"As per Section 56(2)(x) of the Income Tax Act, if an individual receives an immovable property without consideration in any financial year commencing on or after April 1, 2017, and the stamp duty value of such property exceeds ₹50,000, the stamp duty value will be treated as taxable income under the head "Income from Other Sources." However, this provision does not apply if the gift is received from a relative. For the purpose of this section, "relative" has been widely defined and includes husband, wife, brother, sister, their spouses, any lineal ascendant or descendant of the individual, etc. Therefore, gifts from these specified relatives are exempt from taxation under Section 56(2)(x)," Surana added. 

Transferor is non-relative

If any individual receives, in any financial year commencing on or after April 1, 2017, from any person or persons, any immovable property, without consideration, where the stamp duty value of such property exceeds Rs. 50,000, the stamp duty value of such property shall be considered as taxable income under the head "Income from Other Sources".

"If a capital asset becomes the property of the assessee through a gift, the cost of acquisition of the asset, for the purpose of calculating capital gains at the time of sale at a subsequent date, shall be the value that was taxable earlier under Section 56(2)(x). This means that the cost of acquisition will be considered as the amount that was deemed as income and taxed when the asset was initially received as a gift under Section 56(2)(x)," said Surana. 

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