NISM-Series-X-B: Investment Adviser (Level 2) · Tax Provisions for Special Cases

Tax Treatment of Gifts and Inheritance in India

Updated 11 October 2026 · Fact-checked

A gift received without consideration is taxed as income from other sources if the non-exempt gifts exceed ₹50,000 in a year. Gifts from relatives, on your own marriage, or by will or inheritance are exempt. An inherited or exempt-gifted asset keeps the previous owner's cost and holding period.

Understand Tax Treatment of Gifts and Inheritance

India has no gift tax and no inheritance tax as a separate levy. Instead, the receiver can be taxed under Income from Other Sources, section 56(2)(x), when any person (an individual, HUF, firm, company and so on) receives money or property without consideration or for inadequate consideration.

The test has a threshold of ₹50,000, and it is applied separately under each clause: the aggregate of money received without consideration; the stamp duty value of immovable property received without consideration; and the aggregate fair market value of other property received without consideration. If the figure under a clause is ₹50,000 or less, nothing is taxed under that clause. If it exceeds ₹50,000, the whole amount under that clause is taxable, not just the excess. Taxable gifts are added to income and taxed at slab rates.

Value depends on the asset. For money, it is the amount. For immovable property, it is the stamp duty value. For other property such as shares and securities, jewellery, paintings, sculptures, drawings, works of art, archaeological collections and bullion, it is the fair market value. Fair market value is worked out under the Income-tax Rules, and unlisted shares have a prescribed method of valuation. Do not add money, immovable property and other property into one total for the ₹50,000 test.

Many gifts are exempt. The main ones are gifts from a relative, gifts on the marriage of the receiver, property received under a will or by inheritance, and gifts made in contemplation of the donor's death. The relative exemption is for individuals; for a HUF, any member is treated as a relative. Certain gifts from local authorities and specified charitable or educational institutions are also exempt.

A gift or inheritance is not a transfer, so the receiver pays no capital gains on receiving it. Later tax arises on income from the asset and, if the receiver sells it, on the capital gain. For an exempt gift or inheritance, the cost of acquisition is the previous owner's cost, and the holding period includes the previous owner's holding. If the gift was taxed under 56(2)(x), the cost is the value that was taxed, and the holding period starts from the date of receipt.

Key formulas to remember

Money gift threshold: Aggregate of money received without consideration (non-exempt) > ₹50,000 in the previous year ⇒ entire aggregate taxable; The ₹50,000 limit is applied separately under each clause: money, immovable property and other property. Up to ₹50,000 is not taxed. Once the money aggregate crosses it, the full amount is taxed, not only the excess.
Immovable property received without consideration: Stamp duty value of the property > ₹50,000 ⇒ entire stamp duty value taxable; Value is the stamp duty value, not the market price. This is a separate clause test from money and other property, so do not total them together.
Immovable property for inadequate consideration: Taxable = Stamp duty value − Consideration, if the difference > greater of ₹50,000 and 10% of consideration; If the difference is within the limit, nothing is taxed. If the consideration was fixed by an agreement earlier than the transfer date, and the consideration or part of it was paid by a non-cash mode on or before the agreement date, the stamp duty value on the date of the agreement can be used. The percentage safe harbour can be changed by amendments, so use the figure in your current workbook.
Other property without consideration: Aggregate fair market value of other property received without consideration > ₹50,000 ⇒ entire aggregate taxable; Covers shares, securities, jewellery, bullion, paintings, sculptures, drawings, works of art and archaeological collections. Fair market value is found under the Income-tax Rules, with a prescribed method for unlisted shares. The ₹50,000 test is on other property alone, separate from money and immovable property.
Other property for inadequate consideration: Taxable = Fair market value − Consideration, if the difference > ₹50,000; This limit is applied under the other property clause. The 10% test applies only to immovable property.
Relatives of an individual: Spouse; brother or sister of the individual; brother or sister of the spouse; brother or sister of either parent; any lineal ascendant or descendant of the individual; any lineal ascendant or descendant of the spouse; and the spouse of each of these persons other than the spouse; The spouse's parents and children are relatives. Cousins and friends are not. For a HUF, any member is a relative.
Exempt occasions and sources: Marriage of the receiver; will or inheritance; contemplation of death of donor; specified institutions; Marriage of the receiver's child, birthdays and anniversaries are not exempt occasions.
Cost and holding period of exempt gift or inheritance: Cost = Previous owner's cost (plus their improvements); Holding period = Previous owner's period + receiver's period; If the previous owner bought before 1 April 2001, the option of fair market value on 1 April 2001 may apply.
Cost of a taxed gift: Cost = Value taxed under 56(2)(x); holding period starts from date of receipt; This prevents the same value being taxed twice.

How to solve Tax Treatment of Gifts and Inheritance questions

Use this order for any question on gifts or inheritance. It separates taxability on receipt from capital gains on later sale.

1Identify the receiver. Section 56(2)(x) applies to any person. The relative exemption is for individuals, and for a HUF any member is a relative.
2Identify the donor and check whether the donor is a relative as defined. A friend, cousin or colleague is not.
3Check the occasion. Marriage of the receiver, will, inheritance or contemplation of the donor's death makes the gift exempt whatever the amount.
4Classify each non-exempt gift: money, immovable property, or other property. Use the right value: amount, stamp duty value or fair market value.
5Apply the ₹50,000 limit separately under each clause: the aggregate of money, the stamp duty value of immovable property, and the aggregate fair market value of other property. Any clause that crosses ₹50,000 is taxable in full. For inadequate consideration, tax only the shortfall, after the stated limits.
6If the question asks about a later sale, decide the cost. Exempt gift or inheritance means previous owner's cost and holding period. A taxed gift means the taxed value as cost and holding from receipt.
7Check the holding period against the long-term limit for that asset, then compute the gain and apply the rate.

Quickest way: Relative, occasion, then ₹50,000

When to use it: Use for MCQs that ask whether a gift is taxable or what the cost of a gifted or inherited asset is.

Ask first: is the donor a relative, or is it a will, inheritance or the receiver's own marriage? If yes, answer exempt.
If not, test each category (money, immovable property, other property) separately against ₹50,000. Does any category exceed ₹50,000? If not, nil.
If yes, the full value of each category that crosses is taxable. Do not subtract ₹50,000.
For a later sale question, ask: was the gift exempt? If yes, take previous owner's cost and holding. If it was taxed, take the taxed value and start the holding at receipt.

Common mistakes in Tax Treatment of Gifts and Inheritance

Taxing only the amount above ₹50,000.
Students treat ₹50,000 like an exemption limit or a deduction.
Fix: It is a threshold. Once crossed, the whole amount is taxable.
Treating cousins, friends or in-laws as relatives.
In daily life these people feel like family.
Fix: Use the defined list only. A parent's brother or sister is a relative. A cousin is not.
Exempting gifts on a child's marriage, a birthday or an anniversary.
The word 'marriage' triggers the exemption in the student's mind.
Fix: Only the marriage of the receiver counts. Gifts received on other occasions from non-relatives are tested against ₹50,000.
Using the donor's market price for property instead of the stamp duty value or fair market value.
Students ignore the valuation rule for each asset category.
Fix: Immovable property uses stamp duty value. Shares, jewellery and similar items use fair market value. Money uses the amount.
Using the date of inheritance as the start of the holding period.
Students assume ownership starts only when the heir receives the asset.
Fix: For inheritance and exempt gifts, include the previous owner's holding period and use their cost.
Saying tax is payable on receiving an inheritance.
Students confuse India with countries that levy estate or inheritance tax.
Fix: Receipt under a will or inheritance is exempt, so there is no tax on receipt. Later tax arises on income from the asset, and on capital gains if it is sold.

Worked examples

Example 1

In one previous year, Rahul receives ₹30,000 from a friend, ₹25,000 from another friend, ₹1,00,000 from his father's brother, and ₹40,000 from a colleague at his own wedding. What amount is taxable in his hands as gifts?

Show the solution

Father's brother is a relative, so ₹1,00,000 is exempt.
Gift at Rahul's own wedding is exempt, so ₹40,000 is exempt.
Non-exempt gifts of money are ₹30,000 + ₹25,000 = ₹55,000.
₹55,000 is more than ₹50,000, so the whole amount is taxable, not ₹5,000.

Answer: ₹55,000 is taxable as income from other sources at slab rates.

Example 2

Meera inherits listed equity shares from her father. He bought them for ₹2,00,000 more than five years before Meera inherited them. Meera sells them on a recognised stock exchange 8 months after inheriting, for ₹5,00,000, and STT is paid on the sale. Assume this is her only long-term capital gain of the year. Is the gain short-term or long-term, and what is the tax on it?

Show the solution

Inheritance is exempt at receipt and is not a transfer, so there is no tax when Meera receives the shares.
Cost of acquisition is the father's cost, ₹2,00,000.
Holding period includes the father's. His holding of more than five years is added to Meera's 8 months, so the total is well over 12 months. Listed shares held for more than 12 months give a long-term gain.
Gain = ₹5,00,000 − ₹2,00,000 = ₹3,00,000.
STT is paid on the sale of listed equity shares, so the 12.5% rate applies to long-term gains above the ₹1,25,000 exemption. This rate and exemption apply to transfers on or after 23 July 2024, and the sale is assumed to be on or after that date. The exemption is available against the aggregate long-term capital gains of the year, and no other such gain is assumed.
Taxable portion = ₹3,00,000 − ₹1,25,000 = ₹1,75,000. Tax = 12.5% × ₹1,75,000 = ₹21,875, plus applicable surcharge and cess.

Answer: Long-term capital gain of ₹3,00,000, taxed at 12.5% on the amount above ₹1,25,000, giving ₹21,875 before surcharge and cess.

Exam tips

Look for the words 'relative', 'marriage of the receiver' and 'will' first. They usually decide the question before any arithmetic.
Watch the trap where the total is exactly ₹50,000. It is not taxable because the test is 'exceeds'.
In cost questions, check whether the gift was exempt or taxed. The two cases give different cost and holding period.
Read whether the asset is immovable property, shares or jewellery. The valuation and the inadequate-consideration test differ.
Expect a short case where a relative's gift and a non-relative's gift appear together. Remove the exempt one before adding.

Practice questions from Tax Provisions for Special Cases

Tax Treatment of Gifts and Inheritance in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Tax Treatment of Gifts and Inheritance: frequently asked questions

Is there a gift tax in India?

There is no separate gift tax. The receiver is taxed under income from other sources if non-exempt gifts exceed ₹50,000 in the year. The tax is paid at the receiver's slab rate.

Which gifts from relatives are exempt?

Gifts of any value from a defined relative are exempt. The list includes spouse, siblings, parents' siblings, lineal ascendants and descendants, and certain spouses of these persons. Cousins and friends are not in the list.

Is property received by inheritance taxed?

No. Property received under a will or by inheritance is exempt at the time of receipt, so there is no tax on receipt. Later tax arises on income from the asset, and on capital gains if the heir sells it.

How is a gifted asset taxed when sold?

If the gift was exempt, the cost and holding period of the previous owner apply. If the gift was taxed under section 56(2)(x), the taxed value becomes the cost and the holding period starts on the date of receipt.

Who is covered by section 56(2)(x)?

Section 56(2)(x) applies to any person who receives money or property, including an individual, HUF, firm or company. The exemption for gifts from relatives is for individuals. For a HUF, any member is treated as a relative.