Gift to avoid Sale

yes you can do.

Legally you can do this and can pay less stamp duty

Yes it can be done. The Income tax department may ask for the gift deeds to prove such gifts. Make sure you got both the gift deeds with you for any future questioning by the department. But must say very intersting and thoughtful way found out by you for tax planing.

The relative should also be covered within the definition of relative u/s 56(2)VII of Income tax act.

The deptt may also suspect the genuinety of the gifts if found any connection between the two gifts i.e.  if it is proved that the gifts have been made for some consideration then it will ceases to be a gift.  Then such transaction will become tax evasion rather a tax planing.

Legally the taxability of both gifts depends upon nature of relationship.

Under section 56, there are certain relationships which do not form part of sprcified relatives vice-versa e.g Uncle-nephew. So you have to take care.

There will be no saving in his transaction as far as stamp duty is concerned unless the property lies in states like Maharashtra where stamp duty on gift transaction involving close specified relatives is levied at concessional rate.

For Income Tax purposes, it would, i say a very crude method. If the matter comes under scrutiny, the two gift transactions can be easily interlinked and their true nature can be revealed which will then not only result in tax liability but penalty also.

I would suggest that if it is indeed sale, go for proper sale transaction unless stamp duty incidence is higher and plan tax savings in legal manner.

Still, if you think that you can save stamp duty and capital gains tax by resorting to gifts, plan indirect gifts with a web of circular transactions.

two things needs to be taken into considration

1) whether the property is movable and immovable

2) what is the purpose of transfer of such property - sale or any other purpose.