Transfer of property by nephew to uncle

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Kapil Khandelwal (Querist)
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23 December 2015 I have transferred a property to my uncle through partition deed Whether this transfer of property from nephew to uncle on the basis of partition deed is taxable in the hands of uncle.
Plz advice me and also plz provide reference of any case law if available

Thanks in advance

A.Soundararajan

A.Soundararajan (Expert)
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23 December 2015 Deed of partition is not deed of sale. Partition is regarded as transfer under the income tax act. Hence not liable to capital gain tax under income tax act.

Kapil Khandelwal

Kapil Khandelwal (Querist)
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24 December 2015 But whether it is taxable in the hands of uncle as a gift?

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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02 August 2025 Good question!

Here’s the clarity on **transfer of property by nephew to uncle by partition deed** and its tax implications:

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### 1. **Is the transfer taxable as capital gain in the hands of uncle?**

* **No**, a *partition* is **not treated as a sale or transfer attracting capital gains tax** under the Income Tax Act.
* Partition means dividing the joint ownership of property among co-owners. So, when nephew transfers his share to uncle by partition, it’s not a sale but a re-arrangement of ownership.
* **No capital gains tax arises in the hands of the uncle** on receipt of the property by partition.

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### 2. **Is the transfer taxable as a gift in the hands of the uncle?**

* Yes, the Income Tax Act treats such **transfer as a "transfer" and can attract tax under the gift provisions** if it qualifies as a gift.

* **Section 56(2)(x)** of the Income Tax Act says that if an individual receives immovable property without consideration or for inadequate consideration, and if the stamp duty value exceeds ₹50,000, the difference is taxable as income under "Income from Other Sources."

* But gift tax laws are exempt for certain relatives.

* **Important:** According to the Income Tax Act, **gifts received from specified relatives are exempt from gift tax**. The list of relatives includes:

* Spouse
* Brother or sister
* Brother or sister of the spouse
* Brother or sister of either of the parents
* Any lineal ascendant or descendant
* Spouse of persons referred to above

* **Nephew-Uncle relation is NOT explicitly listed as an exempt relative**, so **gift received from nephew to uncle is taxable under Section 56(2)(x)** if stamp duty value exceeds ₹50,000.

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### 3. **Summary:**

| Point | Tax Implication for Uncle |
| ------------------------------------ | -------------------------------------------- |
| Transfer by Partition (Capital Gain) | No capital gains tax |
| Gift Tax (Section 56(2)(x)) | Taxable, as nephew is not an exempt relative |

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### 4. **Case Law Reference:**

* **CIT v. M. Thangaraj (1996)** - Partition is not a transfer attracting capital gains.
* Gift taxation exemption to relatives is defined in **Section 56(2)(x)** read with explanation in Income Tax Act.

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### **Advice:**

* Uncle should declare the property received as gift income (if valuation exceeds ₹50,000) and pay tax accordingly.
* To avoid tax, nephew may consider **transferring property as a sale at fair market value** with capital gains implications for nephew but no gift tax for uncle.
* Alternatively, consult a tax expert for planning.

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If you want, I can help draft a detailed note or computation for gift tax. Would you like that?

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