A gift of a house in India carries a certain amount of income tax. The income tax and stamp duty associated with the gift deed in India differ from state to state. In general, gift deed stamp duty can range within the range of 2% and 7% of the property value.
Charges associated with gift deed registration
As with most deeds related to property exchange, a gift deed registration charge is also charged to make the instrument legally binding. While some states charge 1% of the property value, other state charge a standard registration charge.
How is stamp duty calculated on gift deeds?
Gift deeds must be registered with stamp duty as a percentage of their value. In Uttar Pradesh, for instance, 2% stamp duty must be paid as the value of the gift. For example, a $1 crore property will cost the recipient Rs 20 lakhs to stamp the gift.
Is it possible to gift property?
Generally, Indian law considers a gift to meet the following criteria:
- An immovable or movable property must be owned.
- Transferable property is needed.
- Future properties should not be included.
- Tangible property is best.
Gift deed legal requirements
Gift deeds must be registered
The gift of real estate must be accompanied by two eyewitnesses and a signed or authorized certificate. As a result, a gift deed must be registered in the same place as a sale deed if a person wishes to make the transfer legally binding.
Registration fee and stamp duty payment
In general, stamp duty and registration fees are the same as for ordinary sales. A gift deed will be stamped if it is presented for registration.
Gifts from relatives
Depending on the state, close relatives can be eligible for stamp duty concessions. Stamp duty is limited to Rs 200 for residential and agricultural property given to spouses, children, grandchildren, or wives of deceased relatives. If close relatives execute gift deeds, stamp duty is capped at Rs 200 when a gift is made to a spouse, child, grandchild, or wife of a deceased child or grandchild.
Gift that has immediate effect
In the event someone gifts their property, the owner loses ownership over the gifted property as soon as the deed is registered. This is to say, just like a sale or relinquishment deed, the provisions of the gift deed come into effect immediately. Do note that a gift deed takes effect upon the payment of the necessary stamp duty, unlike a Will, which comes into effect after the creator has passed away.
Taxes on gift deeds
A total gift value of Rs 50,000 or less is exempt from income tax. If the total value exceeds this threshold, gifts become taxable. Income tax laws also favor the treatment of gifts made between close relatives. Any asset (movable or immovable) that is gifted to a relative is exempt from tax. Inclusion includes all close relatives of the individual and their spouse, including parents, spouses, siblings, siblings of their spouses, lineal descendants, and spouses.
Your first tax obligation is to pay tax on the house property when you sell it, if it was a gift from a relative. For income tax purposes, the cost is the price paid by any previous owner for the property. Depending on whether your holding period is more than 36 months or not, the profits will be treated as short-term or long-term profits.
Short-term gains will be treated as short-term profits and taxed at the applicable slab rate if the holding period is less than 36 months as computed above. Investing in a residential house or capital gains bonds of Rural Electrification Corporation (REC) or National Highway Authority of India (NHAI) will allow you to claim exemption from 20% long-term capital gains tax if the holding period is longer than 36 months.
Is it possible to take back the property you were gifted?
In a registered gift deed, this aspect must be considered and covered. Unless the donor specifies in the registered contract that he keeps with himself the right to take back the gift, revoking the deal cannot be done under Section 126 of the Transfer of Property Act.
To make sure the donor has the right to revoke the gift deed, the donor must clearly mention this during the drafting of the gift deed. The donor will still be able to get back the gift from the donee even after the gift deed is executed.
Gift deed revocation conditions
To revoke a gift deed, follow these steps:
- In the event of failure or any particular incident, the gift deed can be revoked by the donor and the recipient.
- Gift deeds should be revocable only as a result of acceptance by the recipient of the gift, not just on the donor’s wishes.
- When revocation is required for a gift with no fraud activity, the donor and recipient must move to the court.
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