Summary of this article
No deposit needed if plot cost exceeds capital gains.
Cashbacks taxable if total gifts exceed ₹50,000 yearly.
Parents can gift unlimited amount to children without restrictions.
I sold my residential house in April 2025 and earned long-term capital gains (LTCG) of Rs 25 lakh without indexation. I have finalised a plot of land for Rs 32 lakh for building a house. The agreement will be registered in November 2025. I have also finalised the contractor for the same. Can I use the amount of LTCG against the purchase of the plot of land first and then start construction from my own savings fund and complete the construction within two years and claim exemption for LTCG without depositing money in a capital gains account?
A plot of land is treated as part of the cost of construction of the house for claiming exemption from LTCG under income tax laws. Since you have sold a residential house and you are planning to get a residential house constructed on a plot of land being bought by you, you can claim the benefit of exemption under Section 54 of Income-tax Act, 1961 in respect of the plot of land and cost of construction, provided you complete the construction of the new house within a period of three years from the date of sale of the house i.e., by March 2028. Since the plot of land is being bought during the same year and as the cost of the plot of land itself is higher than your LTCG, you do not have to deposit any money in the capital gains account.
Are cashbacks received to be treated as taxable? Please clarify
Gifts received are not treated as income of the recipient as long as the aggregate of all the gifts received during the year do not exceed Rs 50,000 during a financial year. Once the value of all the gifts crosses this threshold, the whole of the value of the gift becomes taxable in the hands of the recipient.
Cashbacks are treated as gifts in the hands of the recipient under the income tax laws. Any monetary benefit received by a person by way of gifts from a non-relative is subject to income tax under the head “Income from Other Sources” and “Profits and Gains from Business or Profession”, depending on whether you are carrying on business/profession and the cashback is earned in the course of carrying on your business or the same is earned during the course of doing person transactions. So the cashbacks are fully taxable in your hand.
Since gifts received up to Rs. 50,000 in a year are not treated as income of the recipient, so unless the aggregate of your cashbacks with other gifts exceeds this threshold, you need not worry.
How much money can we gift to our children during a financial year? Are there any restrictions as to the number of times we can make the gift during the year? What documents or proof we and our children have to preserve for this purpose?
You can make a gift of any amount to any of your children without any limit and as many times as you wish. The income from whatever source received by the minor is required to be clubbed with the income of the parent whose income is higher and will continue to be clubbed till the assessing officer directs it otherwise.
While taking the gifts, the children should also preferably get a confirmation of the gifts made by the parents and keep the same in records. If possible keep the copy of the bank statement and copies of the income-tax returns (ITRs) of the parents as well as the children for future reference to validate the source of the gift and capability of the parents to give such gifts. Please note that cash gift of more than Rs 2 lakh in a day should not be made, else the recipient will have to pay a penalty equal to the amount of cash gift being made.
The author is a tax and investment expert and can be reached on jainbalwant@gmail.com
(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)
