Cash gift received from parents do not have any tax implications for children
If an individual receives any property (other than immovable property), from any person during any financial year (FY) without consideration, the fair market value (FMV) of which exceeds Rs50,000, then the entire FMV of such property shall be taxable under the head ‘income from other sources’
I want to gift some shares to my daughter when she turns 18 at the end of this year.
I have held the shares for about 7 years now. Will such a transfer attract taxes?
If an individual receives any property (other than immovable property), from any person during any financial year (FY) without consideration, the fair market value (FMV) of which exceeds Rs50,000, then the entire FMV of such property shall be taxable under the head ‘income from other sources’.
The FMV will have to be calculated as per the specified method prescribed in Rule 11UA of the Income-tax Rules, 1962. However, an exemption is available if the same is received from a relative, which includes amongst others, a parent of an individual.
As the shares would be received by your daughter as gift, there should not be any tax implications in her or your hands at the time of receiving or gifting.
However, with respect to the above transaction, it would be prudent to have appropriate documentation in place.
Further, as the shares would be gifted to your daughter once she turns major, (18-years-old), the clubbing provisions will also not be applicable.
Accordingly, the dividend or capital gains as applicable arising at a later point in time shall be taxed in the hands of your daughter only.
I and my brother inherited a house from our father, who bought the property 5 years back. We both have equal share in it. But as my brother lives in it, he wants to buy my share, and I am willing it to sell it to him. Will this be a capital gain for me? What can I do with the money so that it is not taxed?
Yes, the gains, if any, arising from sale of your share of the house to your brother shall be taxable as capital gains in your hands.
For computing the capital gains, in case of inherited property, the period of holding is reckoned from the date of purchase of property by the owner who actually acquired it, other than by inheritance or gift. Since the property had been acquired and held for more than 36 months from the date of acquisition by your father, the resulting gains shall be classified as long-term capital gains (LTCG).
In case of an inherited property, the cost of acquisition should be the cost at which the previous owner had actually acquired the property other than by inheritance or gift, as increased by cost of improvements made later.
Accordingly, the cost at which your father bought the house property should be the cost of the inherited property. The aforesaid cost of acquisition and improvement, if any, made subsequent to the purchase should be increased using the applicable Cost Inflation Index (CII) notified by the income tax department with respect to the FY of purchase and cost of improvement, if any, and the FY of the sale should be used.
LTCG should be computed as the difference between the net sale proceeds and the proportionate share of your indexed cost of acquisition and improvement.
You can avail an exemption from LTCG tax by reinvesting the LTCG in a new residential property situated in India, within the specified time—within 1 year prior to the sale date, or 2 years from sale date, or within 3 years of the sale date for an under-construction property. This is subject to the fulfilment of conditions specified under section 54 of the Income-tax Act, 1961.
You could also invest the LTCG in the bonds notified under section 54EC. The investment should be made within 6 months from the sale date, subject to a threshold of Rs50 lakh.
Assuming that your total income would exceed the basic income exemption threshold applicable for the relevant FY, the balance amount of capital gains will be taxable at 20%. Additionally, surcharge, if applicable, and education cess shall be levied.
If the sale proceeds receivable from sale of a house is less than the value adopted for payment of stamp duty, then for computing the capital gains, the value as assessed for the purpose of payment of stamp duty shall be considered as sales value.
Parizad Sirwalla is partner (tax), KPMG.
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