Income tax is nil — the cost that bites is stamp duty
When a parent gifts a property to a child, the child receives it without paying income tax, no matter how valuable it is. A parent and child are relatives under the gift law (Section 56(2)(x)), so the exemption is complete and there is nothing to declare as income for receiving the property.
Stamp duty is a different animal. It is a charge levied by the state where the property sits, payable to register the gift deed, and it is calculated on the property's value — typically the ready-reckoner or circle-rate value. It is a state levy, wholly separate from income tax, and it is due even though the gift is income-tax free. Several states charge a lower, concessional stamp-duty rate when the transfer is to a close family member, but a rate is still payable, along with the registration fee.
So the headline is worth holding onto: the family pays no income tax on the gift, but it does pay stamp duty and registration to make the transfer legally effective. The two are often confused, and budgeting for the second is what avoids a surprise at the sub-registrar's office.
The gift deed, registered, is what makes it real
A gift of immovable property only takes legal effect when it is made by a written gift deed and that deed is registered. A verbal promise, or a deed that is signed but never registered, does not transfer title. The deed names the donor (the parent) and the donee (the child), describes the property, records that it is given out of love and affection without any payment, and is signed and registered at the sub-registrar's office where the property is located.
Because the NRI child is usually abroad, the practical question is presence. Registration can often be handled through a properly executed power of attorney so the child does not have to travel, but the power of attorney itself has to be drawn and attested correctly — frequently at an Indian consulate abroad — for the registrar to accept it. This is where a transfer most often stalls, so it is worth setting up before the deed is drafted.
The accepted value of the property at the time of the gift should be recorded with care, because it feeds two later things: the stamp duty now, and the paper trail the child will need when they sell.
The cost basis carries over — the sting is at sale, not gift
The most overlooked part of gifting property is what happens years later when the child sells it. For capital gains, the law does not treat the gift as a fresh start. The child inherits the parent's original purchase cost and the parent's holding period (Section 49(1) and Section 2(42A)). The gain is the sale price minus what the parent originally paid (indexed where applicable), not minus the property's value on the day of the gift.
The upside is the holding period: because the parent's years are added to the child's, a long-held family property usually qualifies as a long-term asset immediately, with the more favourable long-term treatment. The downside is the base cost — an old flat bought decades ago for a small sum can carry a large embedded gain that surfaces entirely in the NRI child's hands on sale.
For an NRI selling Indian property, that sale also brings TDS to manage — the buyer is required to deduct tax at source on the sale to a non-resident, and reducing it usually means a lower-deduction certificate (Form 13). The point for the moment of gifting is simply to keep the parent's purchase documents — the original sale deed, cost records, any improvement bills — because those are the papers that will compute the gain correctly when the day comes.
FEMA: what an NRI is allowed to receive as a gift
Alongside the tax position there is an exchange-control question: is an NRI even permitted to receive this property? For most property the answer is yes. Under FEMA, an NRI may acquire immovable property in India by way of gift from a resident who is a relative.
The important exception is the kind of land. An NRI cannot acquire agricultural land, a farmhouse or a plantation property by gift — that restriction applies regardless of the family relationship. A residential flat or a commercial property is fine; farmland is not. If the family asset is agricultural, the transfer has to be thought through differently, and that is worth checking before any deed is drafted.
No separate RBI approval is needed for a permitted gift of residential or commercial property between resident relatives and an NRI — it is a general permission — but the nature of the land has to be confirmed first.
A worked example: the Iyer flat in Chennai
Suresh Iyer, retired in Chennai, wants to gift his Adyar flat to his son Karthik, who has lived in the US for a decade. The flat is residential, so FEMA permits the gift to an NRI son, and as a gift from father to son it carries no income tax for Karthik.
What the family does budget for is stamp duty and registration, charged by Tamil Nadu on the flat's value to register the gift deed. Because Karthik can't easily fly down, he executes a power of attorney at the Indian consulate so the deed can be registered on his behalf, and Suresh hands over the original 1990s purchase deed and cost papers to keep on file.
Years later, if Karthik sells, his capital gain will be computed from Suresh's original 1990s cost, not from the flat's value on the gift date — and the buyer will deduct TDS on the sale to an NRI, which Karthik can reduce with a Form 13 certificate. Nothing here is a tax on the gift itself; it is simply the cost and the compliance that travel with the property. Doing the deed cleanly now is what keeps that eventual sale straightforward.