Immovable properties, including a house, received as a gift from a relative without any consideration are not taxable. The list of close relatives includes parents, spouses, siblings, siblings of the spouse, and lineal ascendants and descendants of the person and their spouse. It is applicable to properties for which the stamp duty is over Rs 50,000. While there’s no tax implication on receiving these gifts, the sale of such properties is a different matter.
In general, if we had acquired property from someone and have now decided to sell, the property would have a tax liability. In case the property has been held for over 24 months, the gains are counted as long-term capital gains.
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For properties received as gifts, the term is counted from the date it was bought by the acquirer rather than by the way of gift. So, in case the property was acquired 5 years before it was gifted to an individual, its holding period will be counted for the entire 5 years. So, any gains made by the sale of such property will counted as long-term capital gain and shall be taxable at the rate of 20 per cent (plus surcharge and cess).
The LTCG shall be calculated on the net sale proceeds, calculated after the deduction of sale expenses and cost of acquisition, which shall be the cost at which the house was originally acquired. Further costs incurred in the improvement or maintenance of property shall also be considered while computing LTCG.
The cost of acquisition and improvement should be adjusted by applying the cost inflation index as prescribed. In case, the asset was originally acquired before 1 April 2001, the calculation of the cost of acquisition and cost of the improvement will be slightly different.
If the tenure of ownership of the property is less than 24 months, the tax application in case of sale of the property shall be under Short-Term Capital Gains. In the case of LTCG, there is the provision of tax exemption by reinvesting in certain assets in the prescribed mechanism. This benefit is given keeping in mind the impact of inflation and how it changes the price of a property over a period of time. As for the Short-Term Asset, this benefit is not usually provided.
STCG is calculated by subtracting the sum of the cost of acquisition, home Improvement cost and cost of transfer from the final price of the property.
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