Stamp duty & tax on real estate gift deeds
While there is no monetary consideration for a gift of real estate, it must be registered and taxes must be paid in certain circumstances.
If you’re giving property as a gift, do you have to register the deed?
Is it necessary to pay stamp duty if you’re gifting your home to someone else?
Should the parties really be paying stamp duty in the case of a gift, since no money is exchanged for the property?
Who would pay the stamp duty if it had to be paid – the donor or the donnee?
If you’re giving your home to a family member or relative, will the stamp duty implications still apply?
If you’re planning to give away your immovable assets, these and other questions may be confusing.
Gifting is the act of a person voluntarily transferring certain or all of his rights in an asset he owns to another person for no monetary consideration. Given that they are not earning anything from the change of ownership of the property, it may seem strange that a donor is expected to pay a fee to gift his property to another person. Despite the fact that this is not a typical transaction, gifting a home has an income tax and stamp duty implications. The key aspects of a property gift in India are discussed in this article.
What kind of property can be given as a gift?
To be considered a gift under Indian law, a property must meet the following criteria:
- The house must be either movable or immovable.
- The house must be able to be transferred.
- The house should not be used as a future investment.
- The asset should be observable.
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The requirements for a gift deed are as follows:
The transfer of house property as a gift must be accompanied by a registered instrument or document signed by or on behalf of the person gifting the property, as well as attested by at least two eyewitnesses, according to the provisions of the Transfer of Property Act.
This means that if you want the transaction to be legally binding, you can’t just decide to gift property and do so without first going through the legal process.
A gift deed, like a sale deed, must be registered in the sub-office registrars according to the proper procedure.
When the gift deed/document is presented for registration, the registrar must ensure that proper stamp duty has been applied. In most cases, the amount of stamp duty and registration fees due on a gift deed are the same as they are on a regular sale.
However, if the gift deed is executed between a set of close relatives, some states offer stamp duty exemptions. For example, in Maharashtra, stamp duty on gifts of residential or agricultural property to one’s spouse, children, grandchildren, or wife of a deceased son is capped at Rs 200, regardless of the property’s value.
The gift is immediately effective.
Owners who give their property as a gift should be aware that once the gift deed is recorded, the owner loses ownership of the gifted property. This means that, like a sale or a relinquishment deed, the provisions of a gift deed take effect immediately. This is not the case with a Will, whose provisions take effect only after the creator of the Will has passed away.
Keep in mind, however, that a gift deed only becomes effective after the stamp duty is paid.
Gift deed income tax
The value of all gifts received by a person during a year is fully exempt under income tax laws, as long as the total value of such gifts does not exceed Rs 50,000 in a year. If the total value of all gifts received exceeds Rs 50,000, the total value of all gifts received becomes taxable, regardless of the threshold exemption.
Gifts between two close relatives, on the other hand, are treated favorably by income tax laws. As a result, a gift of any asset (movable or immovable) made to certain specified relatives is fully tax-free in the recipient’s hands, with no upper limit.
Parents, spouses, siblings, spouse’s siblings, lineal ascendants, and descendants of the person and his/her spouse are included in the list of close relatives. The spouses of the above-mentioned individuals are also included on the list.
If you receive a house as a gift from a relative, the first tax bill will be due when you sell the property. For income tax purposes, the cost is determined by the price paid for the property by any of the previous owners.
The profits will be classified as short-term or long-term depending on whether your holding period, as well as that of the previous owner who paid for it, totals more than 36 months.
If the holding period calculated above is less than 36 months, the profit earned on the sale of the property will be considered short-term and added to your regular income, taxed at the applicable slab rate.
If you invest in a residential house or in capital gains bonds issued by the Rural Electrification Corporation (REC) or the National Highway Authority of India for a period of more than 36 months, you will receive indexation on the cost of the property as well as the option to claim exemption from payment of the 20% long-term capital gains tax (NHAI).
Is it possible for you to reclaim the property you were given?
A gift can be returned, but this must be considered and included in the registered gift deed. Revocation of the agreement is not possible under Section 126 of the Transfer of Property Act unless the donor specifies in the registered contract that he retains the right to revoke the gift.
This means that the donor must clearly state when drafting the gift deed that even after the gift deed is executed, the donor retains the right to revoke the gift deed and take back the gift from the donee if and when he so desires.
Revocation of a gift deed is subject to certain conditions.
The steps for revoking a gift deed are as follows:
– It is critical to have a clause or agreement between the donor and the recipient that the gift deed can be revoked in certain circumstances. This could be a failure or a specific incident.
– The condition for revoking the gift deed should be accepted by the recipient at the time of receipt of the gift and should not be solely based on the donor’s will.
– Any gift that was not given as a result of fraudulent activity cannot be revoked unilaterally. In such cases, the donor and recipient must go to court to have it revoked.
There are a few things to keep in mind when it comes to gift deeds.
Gifts to people who aren’t family: Gifts between non-relatives are not recognized as legal in Indian law. This assumption is based on the assumption that the owner would charge a fee to someone they don’t know. The deed must be registered as a sale deed in any case.
Revocation of the gift: To have a gift deed revoked, the donor must show that he was duped or coerced into doing so. There is no other way to reclaim a property that has been given to you.
Gifts received in marriage: Gifts received from relatives on the occasion of a marriage, as well as gifts received through the execution of a will or inheritance, are exempt from taxation.
Validity of a gift deed: A gift deed is valid if it is properly executed and the transferor is the legal owner of the property in its entirety. Another requirement for a valid gift deed is that no court orders should prevent the transfer.
Tax liability on gift deeds: For someone who receives a gift deed as a result of marriage, inheritance, or from a local authority, there is no tax liability on the gift deed. The same is true for gifts from foundations, trusts, educational institutions, medical institutions, and other organizations.
Other suggestions for carrying out a gift deed
– It is not necessary to execute a gift deed if you are gifting movable property.
– Mention in the gift deed that you are transferring the property out of natural love and affection for the donnee.
– The reason for the gift should ideally be mentioned in the gift deed. The reason could be for the greater good or for the individual.
– You must also submit proof of the donee’s acceptance of the gift at the time of registration of the gift deed.
– Before executing a gift deed, consult with your family. To avoid future legal issues, it is necessary to bring them on board.
Myths about good deeds
– You can give your property to whomever you want: You can only give away self-acquired property that you own outright. No shared property can be given away. This is especially true when it comes to inherited property.
– There are no tax implications because it is a gift: On high-value gifts, the recipient will be required to pay taxes. Stamp duty implications will arise because all properties are invariably high-value gifts.
– A property can be given to anyone: Only a person in perfect mental and emotional health can give a property as a gift. The gift deed will be null and void if this is not done.
How do you figure out the stamp duty on a gift deed?
Because stamp duty on gift deeds must be paid as a percentage of the property value, the calculation would be based on the percentage charged on gift deed registrations in each state. In the state of Uttar Pradesh, for example, the gift recipient must pay a stamp duty of 2% of the gift value. If the property being gifted has a stated value of Rs. 1crore, the person receiving it will have to pay Rs. 20lakh in stamp duty on the gift deed.
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