Stamp duty and tax on gift deed of property

While a present of house property doesn’t involve monetary consideration, it must be registered and taxes should be paid in certain cases

Do you need to get the deed registered, if you’re gifting a property?

Do you need to pay stamp tax, if you’re gifting your property to a different person?

In case of gift, since there is no money taken in exchange for the property, should the parties really be paying stamp duty?

If the stamp duty is to be paid, who would make the payment – the donor or the donnee?

Would the stamp tax implications still arise, if you’re gifting your property to a loved one or a relative?

These and lots of other questions might confuse you if you’re getting to gift your immovable assets.

Gifting is an act, through which an individual voluntarily transfers certain or all rights in an asset owned by him to a different person, with none consideration. It may seem awkward that a donor is expected to pay a cost, to gift his property to another person, given the fact that they are not earning anything through the change of ownership of the property. Even though this is often not sort of a typical transaction, gifting of a house property has certain tax and stamp tax implications. In this article, we discuss the key aspects of a present of property in India.

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Legal requirements for gift deed

Under the provisions of the Transfer of Property Act, the transfer of a house property as a gift, has to be backed by a registered instrument or document, signed by or on behalf of the person gifting the property and it should even be attested by a minimum of two eyewitnesses. This means, one cannot simply plan to gift a property and do so without completing the legal procedure, if they intent to form the transaction legally binding.

Just like within the case of sale deeds, a present deed must even be registered within the sub-registrar’s office, following the due procedure.

The registrar shall ensure that proper stamp duty has been affixed on the gift deed/document when it is presented for registration. The amount of stamp tax and registration charges payable, with reference to a present deed, are generally an equivalent as within the case of a daily sale. However, if the gift deed is executed between some specified close relatives, some states provide concessions in stamp duty. For example, Maharashtra features a cap on stamp tax payable on gift of a residential or agricultural property to one’s spouse, children, grandchildren or wife of a son who has died, at Rs 200, irrespective of the value of the property.

Gift comes into effect immediately

Owners gifting their property must be mindful of the very fact that as soon because the gift deed is registered, the owner loses his ownership over the gifted property. This is to mention, the provisions of the gift deed, a bit like a purchase or a relinquishment deed, inherit effect immediately. This is not true just in case of a Will, the provisions of which inherit force only after the creator of the desire passes away.

However, do note that a present deed takes effect, only upon the payment of the requisite stamp tax. 

Income tax on gift deed

According to tax laws, the worth of all the gifts received by an individual during a year is fully exempt, as long because the total of such gifts does not exceed Rs 50,000 in a year. If the worth of all the gifts taken together exceeds Rs 50,000, then, the mixture of the gifts received become taxable with none threshold exemption. However, tax laws also provides a favourable treatment, to gifts between two close relatives. Consequently, the gift of any asset (whether movable or immovable) made to certain specified relatives, is fully exempt from tax within the hand of the recipient, with none upper limit. The list of close relatives includes parents, spouse, siblings, siblings of the spouse, lineal ascendants and descendants of the person and his/her spouse. The list also includes spouse of the abovementioned persons.

If the house property is received as a present from a relative, the primary incidence of tax will arise, once you sell the property. The cost for the aim of tax, shall be the taken because the cost that was purchased the property by any of the previous owners. The profits shall be treated as short-term or long-term, counting on whether the mixture of your holding period also as that of the previous owner who had actually paid for it, is quite 36 months or not.

If the holding period as computed above is a smaller amount than 36 months, the profit accrued on the sale of such property, shall be treated as short-term and can be added to your regular income and taxed at the applicable slab rate. However, if the holding period is quite 36 months, you’ll get the advantage of indexation on the value of the property, also because the choice to claim exemption from payment of 20% long-term capital gains tax, by investing in a residential house or in capital gains bonds of Rural Electrification Corporation (REC) or National Highway Authority of India (NHAI).

Read Also: Prestige City Gift Yourself and Your Family Self-Indulgence in Bangalore

Can you take back your gifted property?

One can take back a present but this aspect must be considered and covered within the registered gift deed. Under Section 126 of the Transfer of Property Act, revoking the deal will not be possible, unless the donor specifies in the registered contract that he keeps with himself the rights to take back the gift.

This means that at the time of drafting the gift deed, the donor has to clearly mention that even after the gift deed is executed, the donor will still hold the right to revoke the gift deed and take back the gift from the donee, if and when he wishes to try to to so.

Key points to remember about gift deeds

Gift to people aside from relatives: Under the Indian laws, gifts between non-relatives aren’t acknowledged as legal. This assumption is predicated on the premise that the owner would charge a consideration from someone who isn’t known to them. In any case, the deed will need to be registered as a purchase deed.

Retraction of gift: To retract a present deed, the donor will need to prove that he was duped or forced to execute the deed. There is no other way to take back a gifted property.

Gifts received in marriage: Gifts that are received from relatives on the occasion of a wedding, through the execution of a will or inheritance, aren’t taxed.

Gift validity: A gift deed is valid if it is duly executed and the transferor is the absolute legal owner of the property. Another condition for the gift deed to be valid, is that no orders of courts should prevent such a transfer.

Tax liability on gift deeds: The liabilities doesn’t arise on gift deeds, for somebody who has received an equivalent on the occasion of marriage, or by way of inheritance, or from a local authority. The same is also true for gifts received from a foundation, trusts, educational institutions, medical institutions, etc.

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