Nephew Gifts ₹1.65 Crore Property to Uncle: Tax-Free Gift or Tax Trouble?
One morning, over my usual cup of tea, I received a phone call from one of my relatives. The conversation began with a seemingly simple question about a gift of property-but, as often happens in taxation, one simple question soon opened several complicated doors!
He told me that his nephew (his brother’s son) was proposing to gift him an immovable property having a stamp-duty value of ₹ 1.65 crore. There would be no consideration, the gift would be made through a registered gift deed and applicable stamp duty would be paid. So far, everything sounded straightforward. Then came the twist.
The proposed recipient was planning to sell the property within a year of receiving it. The property was originally purchased by the nephew way back in 1998.
He confidently told me that the gift would be tax-free because it was from a “relative”. He then had several questions: Would ₹1.65 crore become his cost of acquisition when he subsequently sells the property? Or would he have to take his nephew’s 1998 cost? Could he use the fair market value as on 1st April 2001? And, since he would sell the property within a year, would the gain be short-term or long-term?
I smiled. He was absolutely confident that the gift would be tax-free. I already knew that the Income-tax Act had a different answer—and I suspected that the answer was going to come as quite a surprise to him! The gift had not yet changed hands, but it had already produced enough tax questions to fill a column!
Relative — But Relative According to Whom?
At first glance, the answer seems obvious: a gift received from a relative is generally tax-free. But the Income-tax law does not use the word “Relative” in its ordinary family sense. It provides for a specific definition as to who qualifies as a “Relative”. And here comes the surprise.
Under section 92(5)(g) of the Income-tax Act, 2025, the following categories of persons are considered as “Relative” of the individual receiving the gift:
(i) spouse of the individual;
(ii) brother or sister of the individual;
(iii) brother or sister of the spouse of the individual;
(iv) brother or sister of either of the parents of the individual;
(v) any lineal ascendant or descendant of the individual;
(vi) any lineal ascendant or descendant of the spouse of the individual;
(vii) spouse of the person referred to in clauses (ii) to (vi).
Brothers and sisters are covered. Parents, children and certain other specified relationships are also covered through the definition. But the son or daughter of a brother/sister i.e., a nephew or niece, is not included in the specified definition.
Therefore, although a nephew is unquestionably a relative in ordinary family language, he is not a “relative” when he is the donor and the uncle is the recipient. Tax law has its own family tree! The important point is that the relationship has to be examined from the perspective of the recipient of the gift.
Suppose an uncle gives a gift to his nephew. The uncle is covered in the specified list of relatives when viewed from the nephew’s side. The gift received by the nephew from his uncle can therefore enjoy the exemption.
But reverse the direction. If the nephew gives the gift to the uncle, the nephew does not fall within the specified definition of “relative” from the uncle’s side.
Same family. Same blood relationship. Same property. Just the direction of the gift changes—and so can the tax result!
So, What Happens to the ₹1.65 Crore Gift?
The gift tax as a separate levy was abolished long ago. However, the Income-tax Act has expanded its scope to tax such gift as ‘Income from Other Sources’. Under the Income-tax Act, 1961, this was governed by section 56(2)(x), whereas the corresponding provision under the Income-tax Act, 2025, is section 92(2)(m).
Where an immovable property is received without consideration from a person who is not a specified relative and its stamp-duty value exceeds ₹50,000, the stamp-duty value can become taxable in the hands of the recipient.
In the present case, the property has a stamp duty value of ₹1.65 crore. Entire ₹1.65 crore would be taxable as income in the hands of the uncle. That may sound harsh-but taxation does not always follow family emotions!
But What About the Nephew?
There is some relief on the other side. The act of making a genuine gift does not by itself create income-tax liability in the hands of the nephew. A genuine gift is not regarded as a “Transfer” for the purposes of capital gains, and therefore the mere act of gifting the property does not, by itself, result in capital-gains tax in the hands of the nephew.
So, at this stage, the answer to the first question is quite clear: the ₹1.65 crore gift is not tax-free merely because it is coming from a nephew. The nephew is not included in the specified definition of ‘relative’ when he is the donor and the uncle is the recipient. For the nephew, making a genuine gift does not result in income-tax liability.
By this time, my tea was over, but our telephonic conversation was far from over. The tea may have ended, but the tax questions had only just begun!
The uncle was not merely planning to receive the property; he intended to sell it within about a year. And that immediately raised another fascinating question: If ₹1.65 crore is taxed as a gift today, will the same ₹1.65 crore become his cost when he sells the property tomorrow? Or will he have to step into his nephew’s shoes and adopt the cost of the property purchased way back in 1998 or value as on 01/04/2021? And there was an even more interesting question – if the uncle sells the property within a year of its receipt, will the resulting gain be short-term or long-term?
After all, the property had been with the nephew since 1998. Could those almost three decades of holding somehow travel with the gift? That is where the tax story takes another interesting turn-and we will explore it in the next part of The TAX Talk.
[Views expressed are the personal views of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & response to queries are available at www.theTAXtalk.com]
