Joint, Inherited and Gifted Property

Much property in India does not have one owner who bought it with his own money. A flat may be registered in the names of a couple although one spouse paid for it. A house may pass from a parent to three children under a will, or be gifted by a father to a daughter. Each case raises the same three questions: who is taxed, on what cost, and from what date. The answers also decide how the buyer deducts TDS and who may claim an exemption on reinvestment. This guide takes joint, inherited and gifted property in turn, under both Acts.

Which Act applies

Receiving property by inheritance or gift, and selling it, are each taxed under the Act in force on the date of the event. The 1961 Act governs events up to 31 March 2026 (financial year 2025-26 and earlier). The Income-tax Act, 2025 governs events from 1 April 2026 (tax year 2026-27 onwards). A flat inherited in 2015 and sold in 2027 is therefore taxed under the 2025 Act, but its cost and holding period reach back to the previous owner under rules that both Acts share.

Joint ownership

Each co-owner is taxed on his or her own share. For house property, co-owners with “definite and ascertainable” shares are not assessed as an association of persons. Each includes his share of the income (section 26; section 24). On a sale, each co-owner computes the capital gain on his own share of the consideration and cost, and claims any exemption separately. If the deed does not state shares, the co-owners’ contributions and the deed’s wording are the usual evidence.

Title and funding. Two rules apply where one spouse paid and the other is a named owner:

• Income from an asset transferred by an individual to a spouse “otherwise than for adequate consideration” is clubbed with the transferor’s income (section 64(1)(iv); section 99(1)(a)(ii)).
• For house property, an individual who transfers a house to a spouse or minor child without adequate consideration is deemed to remain its owner (section 27(i); section 25(a)).

Buying jointly: TDS. Since 1 October 2024 the Rs 50 lakh threshold for TDS on purchase is tested on the aggregate paid by all buyers to all sellers. Each buyer still deducts on his own payment and files a separate challan-cum-statement for each seller (see TDS When Buying Property). The same applies when several heirs sell an inherited house: each heir is a separate seller with a separate PAN.

Reinvesting in joint names. Sections 54 and 54F require the assessee to buy “one residential house”. They do not say it must be bought in the assessee’s sole name. In CIT v Ravinder Kumar Arora (Delhi High Court, judgment delivered on 27 September 2011, ITA No. 1106 of 2011), the assessee sold a plot for Rs 4.33 crore. He bought a Safdarjung Enclave house for Rs 3.28 crore in the joint names of himself and his wife, paying the whole price himself. The Assessing Officer allowed only half the section 54F exemption. The Court allowed it in full. It held that section 54F “does not stipulate that the house should be purchased in the name of the assessee only”, and that the assessee was the real owner.

In CIT v Kamal Wahal (Delhi High Court, 11 January 2013, ITA 4/2013), the assessee had inherited a half share in a house in Vasant Vihar, Delhi, and sold it jointly with his brother. He bought a new house in his wife’s sole name. The Court followed Ravinder Kumar Arora and the Madras and Karnataka High Courts. It described “the predominant judicial view” as being that the new house “need not be purchased by the assessee in his own name”. The Court relied on the facts that the whole investment came from the sale proceeds and that the house was bought in the name of the wife, not a stranger. The judgment records that the Tribunal in that case had noted a contrary Bombay High Court decision, Prakash v ITO (2008) 173 Taxman 311, and preferred the view favourable to the taxpayer. Both Delhi decisions turned on the assessee having paid the whole price.

Inherited property

No tax on receipt. Neither a will nor inheritance is a “transfer” for capital gains: section 47(iii) of the 1961 Act and section 70(1)(b) of the 2025 Act exclude transfers “under a will or a gift” by an individual or HUF. Property received “under a will or by way of inheritance” is also outside the charge on gifts (section 56(2)(x), proviso clause (III); section 92(3)©). A partition of an HUF is likewise not a transfer (section 47(i); section 70(1)(a)).

Cost. When the heir sells, the cost is “the cost for which the previous owner of the property acquired it”, plus improvements by the previous owner or the heir (section 49(1); section 73(1) [Table: Sl. No. 1]). There are two further rules:

• If the previous owner acquired the property before 1 April 2001, the heir may take its fair market value on that date instead. For land or building, that value is capped at the stamp duty value on 1 April 2001 (section 55(2)(b)(ii) and proviso; section 90(9)(b) and (10)).
• If the previous owner’s cost cannot be ascertained, the fair market value on the date the previous owner acquired it is used (section 55(3); section 90(11)).

Holding period. The previous owner’s period of holding is included (section 2(42A), Explanation 1(i)(b); section 2(101)©(B)(I)). A house inherited last month from a parent who held it for twenty years is a long-term asset.

Indexation from which year? The Act defines indexed cost by reference to “the first year in which the asset was held by the assessee”. In CIT v Manjula J. Shah (Bombay High Court, 11 October 2011, ITA No. 3378 of 2010), a daughter bought a Prabhadevi flat in 1993 for Rs 50.48 lakh and gifted it to her mother in February 2003. The mother sold it in June 2003 for Rs 1.1 crore. The Revenue relied on DCIT v Kishore Kanungo (2006) 102 ITD 437 (Mum), and argued that indexation ran only from 2002-03, when the mother acquired the flat. The Court disagreed. It held that “held by the assessee” must be read with Explanation 1(i)(b) to section 2(42A). The Act taxed the mother’s gain as long-term only by counting the daughter’s period, so the same period governed indexation. Indexed cost was therefore computed from the year the previous owner first held the asset. This guide has not traced a Supreme Court decision on an appeal against this judgment. After 23 July 2024 indexation matters only for the resident individual’s or HUF’s option under the second proviso to section 112(1)(a) and section 197(3) (see Capital Gains on Selling Property). Section 72(8)(b) repeats the words “held by the assessee”.

Property “acquired before 23 July 2024”. That option is available for land or building “acquired before the 23rd July, 2024”. The provisions do not say whether, for an heir, this means the heir’s acquisition or the previous owner’s. An heir who inherited before that date satisfies either reading. For later inheritances, this guide has found no official clarification.

Gifted property

From a relative. Property received from a relative is not taxed as income (section 56(2)(x), proviso clause (I); section 92(3)(a)). A gift by an individual is not a transfer by the donor (section 47(iii); section 70(1)(b)). “Relative” for this purpose includes:

• the spouse;
• brothers and sisters, and the brothers and sisters of the spouse and of either parent;
• any lineal ascendant or descendant of the individual or of the spouse;
• the spouses of any of these

(Explanation to section 56(2)(vii), which also governs clause (x); section 92(5)(g)).

From anyone else. Immovable property received without consideration is taxed as income from other sources on its stamp duty value, where that value exceeds Rs 50,000. Property received for less than its stamp duty value is taxed on the excess, if the excess is more than the higher of Rs 50,000 and 10 per cent of the consideration (section 56(2)(x)(b); section 92(2)(m)(ii)). Gifts received on marriage, under a will, or in contemplation of death are excluded.

Cost on a later sale. For a relative’s gift, the cost is the donor’s cost and the donor’s holding period is included, as for inheritance. Where the stamp duty value was taxed on receipt, that value becomes the cost (section 49(4); section 73(1) [Table: Sl. No. 17]).

Gifts to a spouse. No tax arises on the gift itself. But the income from the gifted property is clubbed with the donor’s income (section 64(1)(iv); section 99(1)(a)(ii)). For a let-out house, the donor is also deemed to remain its owner (section 27(i); section 25(a)).

What to have ready

• For joint property: the deed showing each owner’s share, and bank records showing who paid what.
• For inherited property: the death certificate and the will, probate, succession certificate or legal-heir certificate. Also the previous owner’s purchase deed and improvement records, or a valuation of fair market value on 1 April 2001 together with the stamp duty value on that date.
• For gifted property: the registered gift deed, evidence of the relationship, and the stamp duty value on the date of the gift.
• For a sale by several owners: each owner’s PAN, residential status and share, for the buyer’s TDS forms.

Reporting, due dates and corrections

• Reporting. Each co-owner or heir reports his own share of the gain in his own return, in the capital gains schedule. A taxable gift from a non-relative is reported under income from other sources for the year of receipt.
• Due dates. The return is due by the section 139(1) or section 263(1) date (see Belated and Revised Returns).
• Verification. The return is verified as described in E-Verifying a Return.
• Interest. Interest on advance tax shortfall follows the usual rules (see Advance Tax and Self-Assessment Tax).
• Corrections. A mistaken split of the gain between co-owners is corrected by each one’s revised return or, if it increases tax, an updated return (see The Updated Return (ITR-U)).

Summary

1. For joint property, each co-owner computes the gain on his own share. Clubbing and deemed-ownership rules can move the income back to the spouse who paid.
2. For TDS, aggregate all buyers and sellers for the Rs 50 lakh test. Each buyer then files one challan-cum-statement per seller.
3. For inherited property, no tax arises on receipt. On sale, use the previous owner’s cost (or the 1 April 2001 value capped at stamp duty value) and the previous owner’s holding period.
4. Indexation for an heir or donee runs from the previous owner’s first year, on the Bombay High Court’s view in Manjula J. Shah.
5. For gifts, a relative’s gift is not taxed. A non-relative’s gift of property is taxed on stamp duty value above Rs 50,000, and that value becomes the cost.
6. A new house bought in joint names or in a spouse’s name has been accepted by the Delhi High Court for sections 54 and 54F where the assessee paid the whole price. A contrary Bombay High Court decision was noted in Kamal Wahal.

The next guide, TDS on Rent, turns from selling property to letting it.