Stamp duty and tax on gift deed of property

Do you have to get the deed registered, if you are gifting a property?

Do you have to pay stamp duty, if you are gifting your property to another 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 duty implications still arise, if you are gifting your property to a family member or a relative?

These and many other questions might confuse you if you are planning to gift your immovable assets.

Gifting is an act, through which a person voluntarily transfers certain or all rights in an asset owned by him to another person, without any 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 not like a typical transaction, gifting of a house property has certain income tax and stamp duty implications. In this article, we discuss the key aspects of a gift of property in India.

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 also be attested by at least two eyewitnesses. This means, one cannot simply decide to gift a property and do so without completing the legal procedure, if they intent to make the transaction legally binding.

Just like in the case of sale deeds, a gift deed must also be registered in 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 duty and registration charges payable, with respect to a gift deed, are generally the same as in the case of a regular sale. However, if the gift deed is executed between some specified close relatives, some states provide concessions in stamp duty. For example, Maharashtra has a cap on stamp duty 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 fact that as soon as the gift deed is registered, the owner loses his ownership over the gifted property. This is to say, the provisions of the gift deed, just like a sale or a relinquishment deed, come into effect immediately. This is not true in case of a Will, the provisions of which come into force only after the creator of the Will passes away.

However, do take note that a gift deed takes effect, only upon the payment of the requisite stamp duty.

Income tax on gift deed

According to income tax laws, the value of all the gifts received by a person during a year is fully exempt, as long as the total of such gifts does not exceed Rs 50,000 in a year. If the value of all the gifts taken together exceeds Rs 50,000, then, the aggregate of the gifts received become taxable without any threshold exemption. However, income tax laws also give 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 in the hand of the recipient, without any 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 gift from a relative, the first incidence of tax will arise, when you sell the property. The cost for the purpose of income tax, shall be the taken as the cost that was paid for the property by any of the previous owners. The profits shall be treated as short-term or long-term, depending on whether the aggregate of your holding period as well as that of the previous owner who had actually paid for it, is more than 36 months or not.

If the holding period as computed above is less than 36 months, the profit accrued on the sale of such property, shall be treated as short-term and will be added to your regular income and taxed at the applicable slab rate. However, if the holding period is more than 36 months, you will get the benefit of indexation on the cost of the property, as well as the option 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).

Can you take back your gifted property?

One can take back a gift but this aspect must be considered and covered in 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 do so.

Key points to remember about gift deeds

Gift to people other than relatives: Under the Indian laws, gifts between non-relatives are not acknowledged as legal. This assumption is based on the premise that the owner would charge a consideration from someone who is not known to them. In any case, the deed will have to be registered as a sale deed.

Retraction of gift: To retract a gift deed, the donor will have 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 marriage, through the execution of a will or inheritance, are not 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 tax liability does not arise on gift deeds, for someone who has received the same 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.

FAQs

(The author is a tax and investment expert, with 35 years’ experience)