Bangalore Property Gift Tax Rules: Section 56(2)(x) Guide

What Income Tax Rules Apply When a Bangalore Property Is Received as a Gift From a Parent or Relative?

By the Property Law Team | Legal Brigade | Bar Council of Karnataka

When a Bangalore resident receives a flat or plot as a gift – through a registered gift deed executed by the donor in favour of the donee – the Income Tax Act 1961’s Section 56(2)(x) taxes the gift’s fair market value as income in the donee’s hands if the gift exceeds Rs 50,000 in value, unless the donor falls within the specific list of “relatives” exempted from the gift tax provisions, which includes parents, siblings, spouse and specified other relatives but not friends, colleagues or distant family members whose gifts are fully taxable.

What Is Section 56(2)(x) and When Does It Tax a Property Gift?

Section 56(2)(x) of the Income Tax Act taxes a property received as a gift at the stamp duty value of the property if the stamp duty value exceeds Rs 50,000. The “tax” under Section 56(2)(x) is not a gift tax per se – it is income tax on “income from other sources.” The donee declares the gifted property’s stamp duty value as income in their ITR for the year of receipt and pays income tax at the applicable slab rate on that amount.

The key exemption: gifts from “relatives” as defined in Section 56(2)(x)’s Explanation are not taxable. The relative definition includes: the donee’s spouse, siblings (and their spouses), the donee’s parents, the donee’s lineal descendants (children, grandchildren) and their spouses, and the donee’s spouse’s siblings and parents. Gifts from this defined “relative” group are completely exempt from Section 56(2)(x) taxation regardless of the gift’s value.

What Are the Capital Gains Implications When the Gifted Property Is Later Sold?

When the donee subsequently sells the gifted Bangalore flat, capital gains tax applies on the sale. The cost of acquisition for computing capital gains is the original cost paid by the donor – not the stamp duty value on the gift date. The holding period includes the period for which the donor held the property – so a flat held by the parent for 10 years and then gifted to the child is treated as held for 10+ years from the child’s perspective for capital gains purposes.

Step 1: Confirm the donor’s relationship – whether they fall within the Section 56(2)(x) relative definition. If not, the donee must declare the stamp duty value as income in the ITR for the year of the gift.

Step 2: Execute a registered gift deed at the sub-registrar – stamp duty applies on the gift deed in Karnataka at the applicable rate for gifts to family members (concessional rate for close relatives in some states).

Step 3: Confirm the donor’s original cost of acquisition – this becomes the donee’s cost of acquisition for future capital gains computation.

Step 4: Apply for BBMP mutation to update the property tax records to the donee’s name after the registered gift deed.

Step 5: Have a CA confirm the Section 56(2)(x) position and the capital gains cost of acquisition for the specific gift transaction.

Q1. Is a gift of property between family members taxable in India?

A gift of property from a relative (as defined in Section 56(2)(x)) is not taxable in the donee’s hands – it is specifically exempted from the gift income provisions. A gift from a non-relative above Rs 50,000 in value (the stamp duty value of the gifted property) is taxable as income in the donee’s hands at the applicable slab rate. In practice, most family property transfers are exempt because the donors are within the relative definition.

Q2. Does Karnataka stamp duty apply on a gift deed to family members?

Yes – stamp duty applies on a registered gift deed in Karnataka. Karnataka provides concessional stamp duty rates for gifts between certain family members – the specific rate for gifts between parents and children, siblings etc. is lower than the standard conveyance rate. The applicable rate should be confirmed from the sub-registrar or a property lawyer before the gift deed is executed.

Q3. Can a property be gifted to avoid capital gains tax?

A property owner cannot gift property specifically to avoid capital gains tax – the IT Department’s General Anti-Avoidance Rule (GAAR) can apply to transactions that lack commercial substance and are designed to avoid tax. A genuine family gift (from parent to child, for estate planning purposes) is not caught by GAAR. A contrived gift transaction designed to reduce the gift-back-to-the-original-owner’s capital gains is a different matter.

Q4. What is the cost of acquisition for the donee when they sell the gifted property?

Under Section 49(1) of the Income Tax Act, the cost of acquisition for the donee is the cost at which the donor originally acquired the property. If the donor purchased the flat for Rs 30 lakh and gifted it when the value was Rs 1.5 crore, the donee’s cost of acquisition is Rs 30 lakh – not Rs 1.5 crore. The donee pays capital gains tax on the Rs 1.5 crore less Rs 30 lakh = Rs 1.2 crore gain when they sell.

Q5. Is the holding period for the gifted property calculated from the donor’s purchase date or the gift date?

The holding period for the donee includes the period for which the donor held the property – Section 49(1) treats the donee as if they held the property from the date the donor acquired it. A flat purchased by the parent in 2010 and gifted to the child in 2024 is treated as held from 2010 – giving the child 14 years of holding period, well beyond the 2-year LTCG threshold.

Q6. Can a gift deed be cancelled if the donor changes their mind?

A registered gift deed is a complete transfer of ownership once executed and registered – the donor’s change of mind does not automatically cancel the gift. A gift deed can be revoked only if the gift deed itself contains a revocation clause or if the donee has been guilty of ingratitude (Section 126 of the Transfer of Property Act – ill-treatment of the donor). A gift without a revocation clause and where the donee has not been ungrateful is irrevocable.

Q7. What if a NRI parents gift a Bangalore flat to their resident Indian child?

When NRI parents gift a Bangalore flat to their resident Indian child, the gift is exempt from Section 56(2)(x) because the parents are relatives. The FEMA position should also be assessed – the NRI parent’s property was held under the NRI property framework, and the gift transfers it to a resident Indian who then holds it as a resident. A CA and FEMA specialist should confirm the complete compliance position.

Q8. Does Section 56(2)(x) apply if the property is gifted at an undervalue (partly paid)?

When a property is sold at below the stamp duty value (a part-gift, part-sale), Section 56(2)(x) applies to the difference between the stamp duty value and the actual consideration paid – if the difference exceeds Rs 50,000. For a transfer between relatives, the exemption applies regardless of whether the transfer is at full value, undervalue or a complete gift.

Q9. What if the gifted property is a jointly-owned property – can one co-owner gift their share?

A co-owner can gift their individual share in a jointly-owned property to a relative through a registered gift deed. The gift of a share transfers the gifted share’s ownership to the donee – making the donee a new co-owner with the remaining co-owners. The Section 56(2)(x) exemption applies to the share’s stamp duty value if the donor is a relative.

Q10. How does Legal Brigade assist with property gift transactions?

Legal Brigade confirms the Section 56(2)(x) exemption eligibility based on the donor-donee relationship, confirms the Karnataka stamp duty rate for the specific family gift, drafts and registers the gift deed at the sub-registrar, applies for the BBMP mutation and advises the donee’s CA on the cost of acquisition for future capital gains. Legal Brigade also confirms the FEMA position for NRI-to-resident Indian property gifts.

A parent or sibling wants to gift you their Bangalore flat and you want to confirm the income tax and stamp duty implications? Legal Brigade confirms the Section 56(2)(x) exemption, the Karnataka stamp duty rate and the capital gains cost of acquisition.

WhatsApp → wa.me/8497029999

Frequently Asked Questions