Can my father gift me money to save long term capital gain

My father sold a 10 years old property. Now he want to gift me money to buy a residential plot. Will he still be liable for long term capital gain tax in such case? Or will it attract any tax burden on me?
Asked 1 year ago in Capital Gains Tax from Bangalore, Karnataka
When your father sells his old property and gifts the sale proceeds to you, it is application of income. As his investment is not qualified for exemption u/s 54 or 54F, he will have to pay tax on the capital gains. 

Instead, your father can explore the following three options:

1) Invest the capital gains  in Capital Gains Bonds upto a sum of Rs. 50 Lakhs u/s 54EC of the Income Tax Act and after the lock in period of 3 years, the money  is free to use for any purpose. He can however gift the balance sale proceeds to you without attracting any tax. For instance, the sale proceeds are say Rs. 120 Lakhs and the Long term capital gains after indexation is Rs. 45 Lakhs. He needs to invest Rs 45 Lakhs in Capital Gains Bonds u/s 54EC for the minimum lock in period of 3 years to save tax on the long term capital gain of Rs. 45 Lakhs. He can however gift you the sale proceeds net of the long term capital gains, i.e., Rs. 75 Lakhs (i.e., Rs 120 Lakhs, the sale consideration less the Long term capital gain of Rs. 45 Lakhs).  The remaining Rs 45 Lakhs can be gifted to you after the lock in period of 3 years. 

2) Invest entire sale proceeds in a residential house u/s 54F, if applicable, and you will be the second joint owner of the property. The property will be registered in the name of your father as the first Joint owner and you will be the second joint owner. He can then claim exemption u/s 54 or 54F as applicable. 

3) Invest the capital gains component in a residential house u/s 54 as the first joint owner, while you will be the second joint owner. 
B Vijaya Kumar
CA, Hyderabad
290 Answers
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In this case your father will be assessed for capital gain tax.
Swapnil Patil
CA, Navi Mumbai
29 Answers
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This one is a debatable issue. There are many case laws in favour of and against the purchase of property in the single name of close relatives like son, wife etc.

The position is a more complex when it comes to purchase of the new house by the taxpayer in the single name of a spouse or a child of the taxpayer. A few high courts, including the Delhi high court, have taken the view that purchase of the new house in the name of the taxpayer’s spouse will also qualify for the benefit of the exemption. The courts have noted that the law does not require that the new house has to be in the name of the taxpayer—it merely requires purchase or construction of the new house by the taxpayer, which is satisfied if the funds arising from the sale of the old house are utilized for such purchase or construction of the new house. These courts have also taken the view that since these provisions are exemption provisions, they should be interpreted in a manner to the benefit of the taxpayer, particularly when two views are possible in the matter.

The Nagpur bench of the Bombay high court has, however, taken the view that construction of a new house in the name of the taxpayer’s son would not qualify for the benefit of the exemption. The court has viewed the transaction as a means of transfer of the house, which is normally not permissible for a three-year period.
But Andhra Pradesh and Madras High Courts have given judgement in favour of the Assessee.

Thus to conclude In any case, whenever a taxpayer is contemplating acquisition of a new house to avail the benefit of the long-term capital gains exemption, given the risk of litigation by the tax department, it is certainly advisable for the taxpayer to acquire it in joint names with the close relative to whom he intends to bequeath the house, whether it is the spouse or a child, and not in the sole name of the spouse or child.
Shyam Sunder Modani
CA, Hyderabad
953 Answers
4.9 on 5.0
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There will be long term capital gain and  accordingly there will be tax in your father hand .  If your father gift this money to you , you will not be subject to tax as the gift from the relative is not covered in the taxable income in the hands of the receipients . There is no limit of such gift from the relatives . Section 56 of the Income Tax Act .
Prakash Sinha
CA, Delhi
112 Answers
4.9 on 5.0
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Father will continue to be liable for the capital gains tax. There are better ways to plan this out.
Shashank Surana
CA, Chennai
60 Answers
4.3 on 5.0
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Your father have to pay long term capital gain tax in this case. If he give money to you as a gift. you do not have to pay ay tax.
Kavit Dilip Gadhia
CA, Mumbai
35 Answers
4.2 on 5.0
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