What are the provisions relating to computation of capital gain in case of transfer of asset by way of gift, or through Will, etc.? || Capital Gain on Gifted Assets

Capital Gain on Gifted Assets

Capital gain arises if a person transfers a capital asset. (land, building or jewelry or share etc). section 47 of the Income-Tax Act, 1961 excludes various transactions from the definition of ‘transfer. Thus, transactions covered under section 47 are not deemed as ‘transfer’ and, hence, these transactions will not give rise to any capital gain. Transfer of capital asset by way of gift, will, etc, are few major transactions covered in section 47. Thus, if a person gifts his capital asset to any other person, then no capital gain will arise in the hands of the person making the gift.

If the person receiving the capital asset by way of gift or through Will, etc, subsequently transfers such asset. capital gain will arise in his hands. Special provisions are designed to compute capital gains in the hands of the person receiving the asset by way of gift, will, etc. In such a case, the cost of acquisition of the capital asset will be the cost of acquisition to the previous owner and the period of holding of the capital asset will be computed from the date of acquisition of the capital asset by the previous owner.

the tax ability of gift in the hands of person receiving the gift, separate provisions are designed under section 56.

Related Case Study

CIT v. Manjula J. Shah (2013) 355 ITR 474.

In this case to refer to a very interesting decision of the Bombay High Court. Honorable judges in the above case one can definitely come to a conclusion that.”whenever certain assets are sold and particularly when such assets have been received by way of gift or through Will or by succession or by inheritance. then the cost of acquisition of the asset will be deemed to be the cost for which the previous owner of the property acquired it as increased by the Cost Inflation Index of that year in which the previous owner originally acquired the property.”

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