Gift of property on which LTCG exemption was claimed under Section 54F

Dear client
The particular section talks about a scenario where you’re trying to sell the property within three years and make money out of that. In this case, when your father is going to give the property to you, which means there will be no consideration which you shall be paying to your father, and therefore, there would be no transaction of money. In that case, they should be legally allowed, and there will not be any tax liability on your father.

Dear Client,
Section 54F allows individuals to claim an exemption on the sale of any long-term capital asset other than a residential property. Individuals must utilize the proceeds from the sale to purchase a residential property. The new residential property must be purchased either one year before the sale or within two years from the sale. Alternatively, individuals can construct a new residential property within three years of the sale. Individuals must invest the entire sale proceeds or the capital gain amount in the new residential property. If the entire amount is not reinvested, the exemption will be proportionally reduced. Individuals must hold the new residential property for at least three years from the date of acquisition. Selling it within three years will result in the exempted amount being added to the income in the year of sale. But a Gift is not considered a sale as it yields no gains to the donor assessee and accordingly, the lock-in period does not apply to the transfer of property through gift. Income Tax is a branch of law or legislation, that eventually comes under the arena of Chartered Accountants and Tax Consultants who have expertise and in-depth knowledge on the subject and may guide you properly to navigate the issue in the right way. So, it is essential to consult with a tax professional or chartered accountant to ensure compliance with the provisions of the Income Tax Act.

Deal madam,
it is purely tax related matter as such you may please approach any chartered accountant to get authenticated advice.

Dear Client,

Your father should not transfer the newly purchased residential property (flat) within three years from the date of purchase.
If the property is transferred within this period, the capital gains exemption claimed on the sale of the original property will be revoked, and your father will be liable to pay tax on the capital gains in the year of the transfer.

The term "transfer" under the Income Tax Act includes gifting the property (as per Section 2(47) of the Income Tax Act).
Hence, gifting the flat within the three-year period would be considered a transfer and would trigger the withdrawal of the capital gains exemption under Section 54F.

If your father gifts the flat to you within three years of its purchase, the capital gains exemption availed under Section 54F will be reversed, and your father would have to pay capital gains tax on the original property sale.

It would be advisable to wait for three years from the date of purchase before gifting the flat. This will ensure that your father does not lose the capital gains exemption under Section 54F. After the three-year period, he can gift the flat to you without any tax consequences related to Section 54F.

Regards