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Pankaj Tyagi
| Updated: 21 Oct, 2021 | Category: Deeds Agreements

A Brief Outlook Gift Deed Stamp Duty and Taxation

Gift Deed Stamp Duty
  • Are you planning to draft a deed for gifting property to your loved one?
  • Are you unsure about the existing implications concerning gift deed stamp duty and taxation?
  • Since there is no monetary transaction involved for the property exchange, should the parties really be addressing stamp duty in the case of a gift?
  • What role does the donor or the donee serve when it comes to confronting stamp duty?
  • What will be the stamp duty implications in case you are gifting your property to a close relative?

These are some common queries that may confuse you if you intend to gift your immovable property. In legal parlance, Gifting is an act through which an individual intentionally transfers specific or entire rights vested with an asset owned by him to another individual without expecting anything in return. The Gifting of the property also attract specific tax and stamp duty implications. This write-up will unveil some critical facts about Gift Deed Stamp Duty and applicable taxes.

What type of property qualifies to cited in a gift deed?

A property must comply with given prerequisites to qualify as a gift under Indian laws;

  • The property should be movable or immovable by nature.
  • The property should stand legally fit for transfer. 
  • The property must not be a future property, and it should be tangible in nature. 

Underlying Legal Conditions for Gift Deed

  • In the purview of the Transfer of Property Act, the transfer of immovable property as a gift must have a valid legal ground in the form of a registered instrument or document. Such documents should enclose the donor as well as the witnesses’ (two in number) signature. This implies that the gifting process shall stand invalid until such requirements are not fulfilled.
  • Like a sale deed, a gift deed is legalized in the sub-registrar’s office, following the due legal procedure. The registrar must affix the relevant stamp duty in the gift deed/document during the registration process. The sum of gift deed stamp duty & registration charges payable is usually the same in the case of a regular sale.
  • But, if the gift deed is executed between close relatives, some states facilitate concessions in stamp duty. For instance, a state like Maharashtra has a limitation on stamp duty payable on the gift of a house or agricultural property to one’s children, spouse, or wife of a son who has died grandchildren, at Rs 200 regardless of the property’s valuation.
  • It should be noted that the donor’s ownership rights would cease to exist after gift deed registration. Just like a sale or a relinquishment deed, the gift deed come into effect immediately. However, the same is not true in the case of Will. The Will usually come into effect after the demise of the will-maker, aka testator. But, please note that the gift deed come takes effect only after the payment of the applicable gift deed stamp duty.

Existing Tax Implications for Gift deed in India

In the purview of IT laws, the valuation of the entire gift received by an individual during a given year is fully exempt if the overall sum of such gifts does not surpass Rs 50,000 in a year. In case the gift valuation exceeds the said amount, then applicable taxes shall come into effect. But, IT laws also ensure a favourable treatment in this regard.

As per prevailing IT law[1], the Gifting of any movable or immovable asset to certain close relatives qualifies for tax exemption available to the recipient, without any upper limit.

This benefit is only available to close relatives such as parents, siblings, lineal ascendants & descendants of the individual & his/her spouse. The list also encompasses the spouse of the said individuals.

The house is gifted to the relative; the first case of tax shall come to light when you sell out the property. 

The cost in the view of income-tax shall be considered as the cost that was paid for the property by any of the preceding owners.  

The profit will be treated as short or long-term, based on whether the aggregate of your holding duration and that of the erstwhile owner who had paid for it, more than thirty-six months or not.

If the holding duration as estimated above is less than the said timeframe, the profit secured on the sale of such property shall be considered as short-term & shall be appended to your regular income & taxed at a given slab rate. But, if the holding duration exceeds 36 months, you will avail the indexation benefit on the property’s cost and the option to claim exemption from payment of twenty per cent long-term capital gains tax by putting funds in immovable property or in capital gains bonds of National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC).

Is it possible for a donor to retrieve gifted property?  

The retrieval of the gifted property is possible if the condition for the same is mentioned in the registered gift deed. This concept is duly is supported by Section 126 of the Transfer of Property Act. Similarly, in the purview of this, the donor can also add the revocation clause in the deed. These allow him/her to revoke the deed post-registration. 

Some Key Points concerning the Gift Deed Revocation

  • It is better to enclose a revocation clause in the gift deed to aid parties in tackling the worst-case scenario.
  • Both the parties must be aware of conditions concerning the gift deed revocation. Any confusion in this regard could jeopardize the legal standing of the Will.
  • Any gift that was not based on fraudulent activity cannot be unilaterally revoked. In such a case, both parties are liable to confront a legal proceeding to finalize the revocation chore.

Important Facts Pertaining to Gift deed

Gifting property to non-relative: As per Indian laws, gifts between non-relatives lack the required legal standing, especially in the case where the donor receives something in return for a gift. This is where the concept of sale deed comes into the picture.

Retraction of gift: To retrieve a gift, the donor must prove that he/she was tricked or forced to execute the deed. The plaintiff in such a case is required to furnish concrete evidence that supports his/her testimony. Otherwise, the judgement may go in favour of the opposition party.

Gifts received in marriage: Tax implications are almost nil in the case of Gifting that occurs during special events such as marriage or reception.

Gift validity: the validity of the gift deed would sustain only if it is duly executed & the donor has substantial evidence that manifests he/she is the actual owner of the property in question. Please note that the disputed property falls outside the ambit of Gift deed registration.

Tax implications on gift deeds: Taxes cease to exist in cases where Gifting occur during special occasion like marriages or via inheritance, or from a local government body. The same condition also applies to gift received from NGOs, trusts, educational institutions, etc.

Bottom-line

The gift deed should clearly manifest the donor’s intention for gifting the valuable property. For instance, if the donor wishes to gift the property due to natural love and affection, the same should be cited in the deed. Keep in mind that the donee acceptance of the deed is equally important as of the donor. Thus, the former must submit proof of acceptance during the registration process. And lastly, avoid executing a gift deed without the permission of the family members. We hope this article on Gift Deed Stamp Duty and taxation was helpful and informative.

Read our article:Advantages of Gift Deed Registration That You Must Know

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Pankaj Tyagi

Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.

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