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Raksha Bandhan 2025: Gifting property to your sister? Key income tax and legal rules you should know
Raksha Bandhan: Section 56(2) of the Income Tax Act exempts gifts from close relatives, including siblings, from tax, irrespective of the property’s value
While a brother can gift property to his sister with no tax liability for either party at the time of transfer since a sister qualifies as a ‘relative’ under the Income Tax Act, legal and tax experts note that if the sister later sells the property, the cost of acquisition for capital gains calculation will be the original price paid by the brother, not the market value on the gift date.
Why the definition of ‘relative’ matters
According to Deepak Kumar Jain, founder and CEO of TaxManager.in, gifts from certain specified relatives are exempt from tax under Section 56 of the Act. These include:
Spouse of the individual
Brother or sister of the individual or their spouses
Brother or sister of either parent of the individual
Any lineal ascendant or descendant of the individual
Any lineal ascendant or descendant of the spouse
Gifts received under a will or through inheritance are also exempt from tax for the recipient, he said.
Under tax law, not all family members are treated equally for gift exemptions. For example, while a gift from an uncle to a nephew is tax-exempt, the reverse, a nephew gifting to an uncle may be taxable in the uncle’s hands. This asymmetry makes it important to verify if the recipient qualifies as a relative under the Income Tax Act, explains Harshit Khurana, Associate Partner, Lakshmikumaran & Sridharan attorneys.
Tax implications upon gift
If a property is gifted by a brother to his sister, who qualifies as a ‘relative’ under the Income Tax Act, there is no tax for either party at the time of the gift. This exemption applies even though the property is transferred without any monetary exchange. However, the relationship must be that of a blood relative; only then is the transaction exempt in the hands of the sister.
Avoid exchange classification
If the sister gives something in return (for example, an expensive gift), the transaction may be seen as an exchange rather than a gift, which would attract tax. To avoid this, it's important to document the transaction clearly as a gift, not a barter, advises Harshit Khurana.
Gift deed and registration
The gift deed acts as record for gift. Maintaining a gift deed can act as a proof in future for both the parties and also for tax purposes. Registration of gift deeds depends on the nature of property. For instance, in the case of immovable property, it is mandatory to get a gift deed registered. While in case of gift of movable property, generally it is not mandatory to get a gift deed registered, said Khurana.
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Jain is of the view that when a property is gifted, it is advisable to register the gift deed to ensure a smooth transfer of ownership rights. However, gift deed registration attracts stamp duty and registration charges, which vary from state to state.
For instance in Delhi, the property must be valued by an approved valuer. Stamp duty and transfer duty are charged at 4% if the donee is a woman and 6% if the donee is a man. Registration fee is 1% of the property value, plus ₹100 in pasting charges.
In Uttar Pradesh (UP), the stamp duty on gift deeds is 7% of the property’s market value.
Most states offer concessional stamp duty rates on gift deeds executed between specified relatives, he said.
Future sale of property by the sister
If the sister later sells the property, the cost of acquisition for calculating capital gains will be the original purchase price paid by the brother, not the market value at the time of the gift. Also, the period of holding by the brother will be added to the sister’s holding period to determine if the sale qualifies for long-term capital gains treatment, adds Khurana.
