Taxation on gifted property

Your Query is whether there is any income tax/ gift tax  liability on the proposed gift of a plot of land by your mother-in-law to your wife.

Reply: The Gift Tax Act 1958 has been abolished, and practically replaced with Section 56(2) (vii) of the Income tax Act 1961, which provides as under:

vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009,—

(a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;

⁹⁶[(b) any immovable property, without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;]

(c)  any property, other than immovable property,—

 (i)  without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;

(ii)  for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration :

Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of sub-clause (b) as they apply for valuation of capital asset under those sections :

Provided further that this clause shall not apply to any sum of money or any property received—

(a)  from any relative; or

(b)  on the occasion of the marriage of the individual; or

(c)  under a will or by way of inheritance; or

(d)  in contemplation of death of the payer or donor, as the case may be; or

(e)  from any local authority as defined in the Explanation to clause (20) of section 10; or

(f)  from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or

(g)  from any trust or institution registered under section 12AA.

Explanation.—For the purposes of this clause,—

(a) "assessable" shall have the meaning assigned to it in the Explanation 2 to sub-section (2) of section 50C;

(b) "fair market value" of a property, other than an immovable property, means the value determined in accordance with the method as may be prescribed⁹⁷;

(c) "jewellery" shall have the meaning assigned to it in the Explanation to sub-clause (ii) of clause (14) of section 2;

(d) "property" ⁹⁸[means the following capital asset of the assessee, namely:—]

 (i)  immovable property being land or building or both;

(ii)  shares and securities;

(iii) jewellery;

(iv) archaeological collections;

(v)  drawings;

(vi) paintings;

(vii) sculptures; ⁹⁹[***]

(viii)  any work of art; ¹[or]

¹[(ix) bullion;]

^1a[(e) "relative" means,—

(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 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 person referred to in items (B) to (F); and

(ii)  in case of a Hindu undivided family, any member thereof;]

(f)  "stamp duty value" means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property;

AS THE PROPSED GIFT IS TO BE RECEIVED BY YOUR WIFE FROM HER LINEAL ASCENDANT, THERE IS ABSOLUTELY NO  IT/GT LIABILITY ON THE PROPOSED TRANSACTION.

My son had purchased a flat by raising a Bank loan and contributions made by me & my wife. The Bank loan was in my son's wife's and my name, with my son's name being the first followed by my wife's and then mine. The EMIs were paid by my son. In addition to the loan my wife & I had contributed some amounts to supplement the Bank loan. These contributions were interest free and with the underatnding that our son could repay as and when he was in a position to do so.

The Income Tax benefit for the loan taken and EMIs paid were availed by my son.

After 3 years, the flat was sold. No capital gains tax was payable on the sale. The sale deed was executed in the name of my son, my wife and myself in that order. The proceeds of the sale were kept as a FD in a nationalised Bank. The FD was in the name of my son, my wifer and myself -- again in that order. The monthly interest is being credited into the a/c of my son, with my name as joint holder. He pays the tax on the interest received.

Now my son is thinking of gifting the entire fixed deposit to me so that I could avail the benefit of higher rate of interest by virtue of my being a senior citizen and also eligible for a higher rate of interest by virtue of being a retd employee of the Bank in which the deposit on being gifted to me is to be put.

My queries:

1) Is this sort of gift permissible? The amount would be about Rs. 44 lacs.

2) If yes, how will the income accruing from gift treated? Will it become part of my income or continue to be of my son's?

3) Even In case it will be treated as part of his income and he will be liable to pay the tax, wouldn't it be still worthwhile because it matters little whether he pay the tax or I do so?

4) The monthly interest from the FDs could be deposited in a separate a/c to be held jointly by me & my son. Whose name should be first -- mine or my son's?

Since my wife is also a jointholder of the existing FDs, is her consent for my son gifting the amount to me required?

Hoping for an early reply.

Keshav Rau

Your queries are:

1) Is this sort of gift permissible? The amount would be about Rs. 44 lacs.

ANSWER: The Gift by son to father, is permissible; the quantum of gift is not relevant

2) If yes, how will the income accruing from gift treated? Will it become part of my income or continue to be of my son's?

Once the son is relieved of any right in the FD or the interest therefrom, no portion of the interest is assessable in his hands, unless the provisions of Section 64(1) (vii) of the Income Tax Act 1961, which provides as under, are attracted. 

   Income of individual to include income of spouse, minor child, etc.

    64.(1) In computing the total income of any individual, there shall be included all such income as arises directly or      indirectly—

                       .............................................

           (vii)  to any person or association of persons from assets transferred directly or indirectly otherwise than for       adequate consideration to the person or association of persons by such individual, to the extent to                which the income from such assets is for the immediate or deferred benefit of his or her spouse; and]

Therefore ensure that your son has no right in  the account to which the interest is credited.

3) Even In case it will be treated as part of his income and he will be liable to pay the tax, wouldn't it be still worthwhile because it matters little whether he pay the tax or I do so?

Answer: This yourself willhave to calculate and decide.

4) The monthly interest from the FDs could be deposited in a separate a/c to be held jointly by me & my son. Whose name should be first -- mine or my son's?

It is better to avoid your son's name, as suggested in (2) above.

5)Since my wife is also a jointholder of the existing FDs, is her consent for my son gifting the amount to me required?

Yes, the Bank Manager will ask for her consent, if not only the son's share but also your wife's share in the FD is transferred to you.