There is no immediate tax liability when a brother gifts a house, land, or other property to his sister. Under income tax regulations, siblings are considered relatives; therefore, special provisions apply to such gifts.
When a brother gifts a house, land, or other property to his sister, the question often arises: is tax payable on this? People generally assume that tax applies as soon as property is transferred; however, according to income tax rules, gifting property between siblings does not create an immediate tax liability. That said, this does not mean the transaction will never attract tax in the future.
When is property received from a brother tax-free?
Under Section 56(2)(x) of the Income Tax Act, 1961, siblings are classified as relatives. Consequently, if a brother gifts property to his sister without any monetary exchange, the transaction falls under the tax-free category, as the property is gifted without any payment being received in return.
The sister may have to pay tax upon selling the property.
If the sister subsequently sells the gifted property, the tax rules change. When calculating capital gains on the sale, the cost of the property is not considered to be its value at the time of the gift; instead, the original purchase price paid by the brother serves as the basis. In other words, the brother's historical records are significant when calculating the tax.
Keep these points in mind when gifting property:
Ensure a registered gift deed is executed when gifting the property.
Safely preserve the documents related to the property's original purchase by the brother.
Keep all records related to the gift and the subsequent sale secure to avoid any complications during future tax calculations.
If the sister provides a substantial sum of money or an expensive gift in return, the transaction may be viewed as an exchange rather than a gift, and tax rules may change accordingly.
Gifts received from which relatives are tax-free?
Under income tax laws, gifts received from certain relatives are exempt from tax:
- Spouse
- Brother or sister
- Parents
- Siblings of parents
- Children and their spouses
- Spouse's parents and their relatives
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