Gift or receipt from family partition

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

24 September 2012 Suppose a family agrees for partition of its property.
In such case from taxability point of view should the property be taken as a gift or receipts from family partition?
And in case want to sell the same property, what would be the tax implementation?
Which do you suggest would give utmost benefit to assessee?

Querist : Anonymous

Querist : Anonymous (Querist)

25 September 2012 please reply

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
Follow

25 July 2024 In the context of Indian tax laws, the treatment of property received from family partition versus as a gift can have different implications. Here’s a detailed explanation:

### Family Partition vs. Gift:

1. **Family Partition**:
- A family partition involves the division of joint family property among its members.
- From a tax perspective, a family partition is not treated as a transfer and therefore does not attract capital gains tax under Section 45 of the Income Tax Act, 1961.
- Each member receives a share in the property based on their entitlement, which is generally considered to be a redistribution of existing rights rather than a new transfer.

2. **Gift**:
- A gift, on the other hand, is a voluntary transfer of property from one person (donor) to another (donee) without consideration.
- Under Section 56 of the Income Tax Act, any sum of money or property received without consideration exceeding Rs. 50,000 in value is taxable as income in the hands of the recipient, subject to certain exceptions (such as gifts received from specified relatives or under certain circumstances where gifts are exempt).

### Tax Implications on Sale of Property Received:

1. **Family Partition**:
- Since the property received through family partition is not considered a transfer, there is no immediate capital gains tax liability at the time of partition.
- However, when a partitioned property is eventually sold by a family member, the cost of acquisition for calculating capital gains tax will be the fair market value of the property as on the date of partition.
- The holding period for determining whether the gains are short-term or long-term will start from the date of the original acquisition of the property.

2. **Gift**:
- If property is received as a gift, the recipient takes over the cost of acquisition and the holding period of the donor.
- When the gifted property is sold, capital gains tax liability will be calculated based on the donor’s cost of acquisition and the holding period.
- If the gift falls under specified relatives as per Section 56, there may be no tax liability for the recipient. However, if it exceeds specified limits or does not fall under exemptions, it may be taxable in the hands of the recipient.

### Suggested Approach for Maximum Benefit:

1. **Family Partition**:
- Opting for family partition can be beneficial because it typically avoids immediate tax liabilities such as capital gains tax at the time of partition.
- Future capital gains tax will be based on the fair market value at the time of partition, which can potentially result in lower tax liability compared to a higher fair market value at the time of gifting.

2. **Gift**:
- Gifts can also be advantageous, especially if they fall under specified relatives where exemptions apply and there is no immediate tax liability for the recipient.
- However, the timing and value of the gift should be carefully considered to ensure compliance with tax laws and to optimize tax benefits.

### Conclusion:

Both family partition and gift have their respective tax implications and benefits. Family partition generally avoids immediate tax liabilities but requires careful consideration of future tax implications upon sale. Gifts can be tax-free if falling under specified relatives but require adherence to exemption limits and documentation requirements. Consulting with a tax advisor or chartered accountant can help in determining the most beneficial approach based on individual circumstances and goals.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now