There is no tax liability for the person giving the gift
However, the recipient of the gifts has to include the value of the same in his income in certain circumstances.
Question: What is the tax liability in respect of flat gifted to daughter by her father which is let out? My understanding is that the gift will not be taxable as it is from a relative, but the rental income should be taxable. Is this correct? If the rental income is clubbed in the hands of the father, what would be the treatment of capital gains at the time of sale when the father is still alive? - Sujata
Answer: There is no tax liability for the person giving the gift. However, the recipient of the gifts has to include the value of the same in his income in certain circumstances. Gifts received from all the sources are fully exempt in the hands of the recipient if the aggregate value of all the gifts does not exceed fifty thousand rupees in a year. But once the value of all the gifts exceeds the threshold limit of fifty thousand rupees, the full value of all the gifts become taxable without any basic exemption. However, the gifts received from certain specified relatives, including father is fully exempt without any limit. So there is no tax liability either on the father or the daughter at the time of gift of the flat.
Generally, any income which is earned or arises on gifted asset becomes taxable in the hands of the recipient if the recipient is major except in the cases where provisions of clubbing of income apply. However, in case the daughter is a minor, the provisions of clubbing of income will apply and all the income which arises to the minor daughter shall get clubbed with the income of the parent with higher income. There is an exemption of Rs. 1,500/- on the income which is to be clubbed with the income of the parent. The capital gains will also become taxable in the hands of the daughter if she is major else will be clubbed as discussed.
Balwant Jain is a tax and investment expert and can be reached on firstname.lastname@example.org