Sold property in India as an NRI: Can you gift the proceeds to your children without tax?

Selling a property after holding it for two decades often brings a mix of relief and confusion, especially for NRIs dealing with Indian tax rules. If you are an NRI based in the Middle East who has recently sold a long-held property in India, one common question is whether you can simply pass on the proceeds to your children without tax complications.

Today's Q&A explains such details in response to a query by a reader.

The capital gains are calculated by reducing the cost of acquisition (as increased by any cost of improvement, if applicable) from the net sale consideration.

As far as distributing the sale proceeds between your two adult daughters is concerned, that is perfectly fine, and you can go ahead with it. Any money you give to your daughters will be treated as a gift. There is no tax liability on the person giving the gift, especially after the removal of donor-based taxation on gifts.

On the recipient’s side as well, gifts are generally treated as income only if the total value of gifts received during a financial year exceeds ₹50,000. However, gifts received from specified relatives are an exception and are not taxed in the hands of the recipient. Parents fall under the definition of specified relatives for this purpose. So in your case, since you are giving money to your daughters, there will be no tax liability for either you or your daughters on the gifted amount.

That said, please keep in mind an important practical point: you will need to first pay tax on the long-term capital gains at 12.5% plus 4% cess, and only then distribute the remaining amount. If you distribute the entire sale proceeds without accounting for tax, you will end up paying the tax out of your own pocket later.

If you are looking to avoid paying capital gains tax, you may be able to claim an exemption by reinvesting the gains. This can be done either by investing in another residential property or by investing in specified capital gains bonds issued by certain financial institutions. If the property sold is a residential property, you are required to reinvest only the capital gains amount. However, if it is a non-residential property, you would need to reinvest the net sale consideration to claim a full exemption.

Alternatively, you can also invest in capital gains bonds within six months from the date of sale, up to a limit of ₹50 lakh. If you do not invest the required amount, the exemption will be reduced proportionately.