Tax Query: What is the amount of tax exemption available for gifts to children?

I am employed for the past 20 years and have accumulated savings in fixed deposits. My present tax liability falls in the highest income bracket of 30%. I wish to gift a portion of my savings of Rs 3 lakh to my daughter, who is turning 18 years of age in May 2020. My daughter has no other income. Am I required to pay income tax on the gifted amount or is my daughter needed to pay tax on the receipt of the gift?

The gift made to a relative is exempt from income tax. Relative includes daughter or son, spouse, your parents, and so on. The gift received by your daughter is exempt from income tax. You have to execute a gift deed and make a bank transfer to your daughter’s bank account. You are not liable to income tax concerning the gift made to your daughter. Your daughter has to apply for a PAN (Permanent Account Number) and file an income tax return. She has to disclose the gift as an exempt income in the income tax return. 

Also Read: Tax Query: Can I claim deduction on housing loan under new tax regime?

My mother expired a year ago. She had inherited a house from her mother, my late grandmother. Now, after the expiry of my mother, my sister and I have inherited the house. The date of purchase of the house dates to 24 January 1988 for Rs 2 lakh. We want to sell the house for Rs 1.5 crore and divide the proceeds. Neither of us owns a house. We plan to use the proceeds to buy individual houses for ourselves. Can we claim a capital gains tax exemption upon purchase of individual houses?

The sale of the inherited house will be taxable as long-term capital gains and taxable in equal shares for you and your sister. In case of investment of long-term capital gains in a residential house, you can claim an exemption of lower of the gains or the actual cost of the new house. However, both of you have to file an income tax return and disclose your share during the transaction of the sale of the house. You should also disclose the details of the new house brought by you and the capital gains exemption claimed.

For any clarifications/feedback on the topic, please contact the writer at sweta.dugar@cleartax.in