- Date : 21/06/2020
- Read: 7 mins
There are a few things that the donor and recipient of a gift must know before transferring and accepting gifts, even in case of inadequate consideration.
A gift deed is a document that captures the fact that an act of gifting has been concluded, indicating the two parties involved in the process. The person offering the gift is known as the donor while the person receiving it is known as the donee. A gift deed acts as documentary evidence of the act of gifting. It is not a mandatory document and can be prepared while gifting any movable or immovable object that is tangible and can be transferred from one person to another.
The registration process
For a gift deed to come into existence, it has to be drafted and all necessary information recorded. The parties involved may seek the advice of a lawyer to assist them in the correct drafting of the document. The act of gifting must be voluntary; it should not go against one’s will or involve exchange of money.
The donee must accept the gift during the lifetime of the donor. The gift deed becomes invalid if the donee’s acceptance is missing. Physical possession of the gift is treated as acceptance.
Section 123 of the Transfer of Property Act states that the gifting of immovable property is not complete without registration. It is only after the registration that the title of the gift passes from the donor to the donee. The presence of and attestation by two witnesses are required for the transfer of title. Gift deeds are registered under the provisions of the Registration Act, 1908.
Related: 5 Popular ways to transfer your immovable property
There are two important steps involved in the registration process:
- Valuation of the gift by an approved valuation expert
- Payment of gift deed stamp duty. This amount varies from state to state and the latest figures are available on each state government’s website. Stamp duty on gift deed is generally lower for women.
Gift involving a minor
Any person who owns property can gift it to any other person. However, there are certain exceptions when a minor is involved. Minors are not eligible for entering into a contract; any contract entered into with a minor is considered null and void.
In case the gift has been given by a minor, the gift deed will not be legally enforceable. On the other hand, if the donee is a minor, a natural guardian can receive the gift on their behalf. The guardian will manage the property received as a gift until the minor reaches the age of majority. After attaining adulthood, the donee may choose to accept the gift or return it.
Documents required
Apart from preparing the gift deed, the parties involved must also produce certain documents at the time of registration of the gift deed, as below:
- PAN card
- Aadhaar card
- Identification documents (such as driving licence, passport, voter ID)
- A sale deed or similar document about the gift that authenticates the ownership of the donor over the property.
Computation of stamp duty
Stamp duty on the property determines the gift tax on the property transferred. Provisions for the same have a striking resemblance to Section 50C of the Income Tax Act. There are some things to be considered while computing the stamp duty on a gift, which are mentioned below.
In case of different dates of agreement and registration, the date of the agreement has to be kept in mind for computing the stamp duty. These records also come into play when the taxpayer questions the valuation of the stamp duty made by the valuation authority. In such cases, the tax officer will evaluate the records and look into the veracity of the taxpayer’s claim.
Related: 7 Things to Know Before You Invest in Land
Taxability
Since 2004, gifts are taxed under the head ‘Income from other sources’. Normal tax rates are applied while imposing tax on gifts received. However, there is a lower limit of Rs 50,000 below which gifts are not taxable. In case of money received without any consideration, no taxes apply to Rs 50,000 in a financial year. If the gift received is more than Rs 50,000, the entire amount is taxable.
If an immovable property is transferred as a gift, no taxes are applicable as long as the stamp duty value of the property is less than Rs 50,000. For property valued over and above this amount, only the differential amount is taxable. Consideration received, if any, is also considered for tax calculation. For example, if a property has stamp value of Rs 5,00,000 and the donee paid Rs 1,00,000 against it, the amount taxable would be 3,50,000 (after deducting the Rs 50,000 threshold and the inadequate consideration of Rs 1,00,000).
In case a movable property is gifted without any consideration, income tax will be applicable on the entire fair market value (FMV) if it exceeds Rs 50,000. However, in case the gift is transferred for inadequate consideration, and its FMV exceeds Rs 50,000, the amount by which the FMV exceeds Rs 50,000 will be taxable.
Note: Stamp duty differs from state to state and varies with the type of document registered. It may also differ depending on the gender of the owner. Look at this infographic to know different stamp duties across Indian states.
Related: What is loan against property?
Exemptions to gift tax
When it comes to income tax, India has notified certain gifts that don't fall under the tax purview, and where the recipient is not liable to pay any gift tax.
- A gift received from a relative is not taxable in the hands of the donee, but any income generated out of it will be taxable. ‘Relative’ for this rule would be spouse, brother or sister, parents of self or spouse, and descendants of self or spouse. For example, if the father gifts an apartment to his daughter it will not be taxable but the rental income earned from the apartment, if any, will be taxable.
- Receipt by an individual from any person on the occasion of marriage.
- Receipt by any person from any person through inheritance or under a will.
- Receipt by any person from an individual due to the death of the donor.
- Receipt by any person when received from local authorities, funds, foundations, universities, and educational, religious or medical trusts, institutions etc. irrespective of the occasion.
- Receipt from any person gifted to trusts, universities, funds, and institutions founded for charitable, religious, educational, or philanthropic purposes, all of which have to be approved under Section 10(23C),
- Receipt from a Hindu undivided family (HUF) by members of the HUF.
- Lastly, receipt from an individual by a trust created for the sole purpose of benefit of the individual or relative is also exempt.
Bear in mind that these types of transfers are often used by taxpayers to minimise their tax liability, so they could attract tax scrutiny. Therefore, the transfer must be for a reasonable amount and sufficient documentation should be maintained.
Related: Gifts and taxes: How much does it cost to make someone happy
Gift deed or will? Pros and cons
- While a will is applicable after the death of the person, a donor can see the execution of a gift deed during his or her lifetime.
- A will can be subject to litigation if the right of the heir is contested by other claimants. A gift deed, on the other hand, is unlikely to be contested, particularly once it is registered.
- Receivables coming out of a will is taxable, but gift deeds are exempt from tax up to the specified limit.
- On the flip side, a gift deed is irrevocable once it’s executed. But a will can be amended multiple times and only the final will is used for inheritance.
- Unlike a will, a gift deed has the additional cost of stamp duty, which varies from state to state.
- If the father wants to gift his house property to his eldest son in a family of 3 children, then the other two children have to separately or jointly execute a release deed or gift deed mentioning their intention to give up their share. This has to be done out of their free will.
A gift deed is a document that captures the fact that an act of gifting has been concluded, indicating the two parties involved in the process. The person offering the gift is known as the donor while the person receiving it is known as the donee. A gift deed acts as documentary evidence of the act of gifting. It is not a mandatory document and can be prepared while gifting any movable or immovable object that is tangible and can be transferred from one person to another.
The registration process
For a gift deed to come into existence, it has to be drafted and all necessary information recorded. The parties involved may seek the advice of a lawyer to assist them in the correct drafting of the document. The act of gifting must be voluntary; it should not go against one’s will or involve exchange of money.
The donee must accept the gift during the lifetime of the donor. The gift deed becomes invalid if the donee’s acceptance is missing. Physical possession of the gift is treated as acceptance.
Section 123 of the Transfer of Property Act states that the gifting of immovable property is not complete without registration. It is only after the registration that the title of the gift passes from the donor to the donee. The presence of and attestation by two witnesses are required for the transfer of title. Gift deeds are registered under the provisions of the Registration Act, 1908.
Related: 5 Popular ways to transfer your immovable property
There are two important steps involved in the registration process:
- Valuation of the gift by an approved valuation expert
- Payment of gift deed stamp duty. This amount varies from state to state and the latest figures are available on each state government’s website. Stamp duty on gift deed is generally lower for women.
Gift involving a minor
Any person who owns property can gift it to any other person. However, there are certain exceptions when a minor is involved. Minors are not eligible for entering into a contract; any contract entered into with a minor is considered null and void.
In case the gift has been given by a minor, the gift deed will not be legally enforceable. On the other hand, if the donee is a minor, a natural guardian can receive the gift on their behalf. The guardian will manage the property received as a gift until the minor reaches the age of majority. After attaining adulthood, the donee may choose to accept the gift or return it.
Documents required
Apart from preparing the gift deed, the parties involved must also produce certain documents at the time of registration of the gift deed, as below:
- PAN card
- Aadhaar card
- Identification documents (such as driving licence, passport, voter ID)
- A sale deed or similar document about the gift that authenticates the ownership of the donor over the property.
Computation of stamp duty
Stamp duty on the property determines the gift tax on the property transferred. Provisions for the same have a striking resemblance to Section 50C of the Income Tax Act. There are some things to be considered while computing the stamp duty on a gift, which are mentioned below.
In case of different dates of agreement and registration, the date of the agreement has to be kept in mind for computing the stamp duty. These records also come into play when the taxpayer questions the valuation of the stamp duty made by the valuation authority. In such cases, the tax officer will evaluate the records and look into the veracity of the taxpayer’s claim.
Related: 7 Things to Know Before You Invest in Land
Taxability
Since 2004, gifts are taxed under the head ‘Income from other sources’. Normal tax rates are applied while imposing tax on gifts received. However, there is a lower limit of Rs 50,000 below which gifts are not taxable. In case of money received without any consideration, no taxes apply to Rs 50,000 in a financial year. If the gift received is more than Rs 50,000, the entire amount is taxable.
If an immovable property is transferred as a gift, no taxes are applicable as long as the stamp duty value of the property is less than Rs 50,000. For property valued over and above this amount, only the differential amount is taxable. Consideration received, if any, is also considered for tax calculation. For example, if a property has stamp value of Rs 5,00,000 and the donee paid Rs 1,00,000 against it, the amount taxable would be 3,50,000 (after deducting the Rs 50,000 threshold and the inadequate consideration of Rs 1,00,000).
In case a movable property is gifted without any consideration, income tax will be applicable on the entire fair market value (FMV) if it exceeds Rs 50,000. However, in case the gift is transferred for inadequate consideration, and its FMV exceeds Rs 50,000, the amount by which the FMV exceeds Rs 50,000 will be taxable.
Note: Stamp duty differs from state to state and varies with the type of document registered. It may also differ depending on the gender of the owner. Look at this infographic to know different stamp duties across Indian states.
Related: What is loan against property?
Exemptions to gift tax
When it comes to income tax, India has notified certain gifts that don't fall under the tax purview, and where the recipient is not liable to pay any gift tax.
- A gift received from a relative is not taxable in the hands of the donee, but any income generated out of it will be taxable. ‘Relative’ for this rule would be spouse, brother or sister, parents of self or spouse, and descendants of self or spouse. For example, if the father gifts an apartment to his daughter it will not be taxable but the rental income earned from the apartment, if any, will be taxable.
- Receipt by an individual from any person on the occasion of marriage.
- Receipt by any person from any person through inheritance or under a will.
- Receipt by any person from an individual due to the death of the donor.
- Receipt by any person when received from local authorities, funds, foundations, universities, and educational, religious or medical trusts, institutions etc. irrespective of the occasion.
- Receipt from any person gifted to trusts, universities, funds, and institutions founded for charitable, religious, educational, or philanthropic purposes, all of which have to be approved under Section 10(23C),
- Receipt from a Hindu undivided family (HUF) by members of the HUF.
- Lastly, receipt from an individual by a trust created for the sole purpose of benefit of the individual or relative is also exempt.
Bear in mind that these types of transfers are often used by taxpayers to minimise their tax liability, so they could attract tax scrutiny. Therefore, the transfer must be for a reasonable amount and sufficient documentation should be maintained.
Related: Gifts and taxes: How much does it cost to make someone happy
Gift deed or will? Pros and cons
- While a will is applicable after the death of the person, a donor can see the execution of a gift deed during his or her lifetime.
- A will can be subject to litigation if the right of the heir is contested by other claimants. A gift deed, on the other hand, is unlikely to be contested, particularly once it is registered.
- Receivables coming out of a will is taxable, but gift deeds are exempt from tax up to the specified limit.
- On the flip side, a gift deed is irrevocable once it’s executed. But a will can be amended multiple times and only the final will is used for inheritance.
- Unlike a will, a gift deed has the additional cost of stamp duty, which varies from state to state.
- If the father wants to gift his house property to his eldest son in a family of 3 children, then the other two children have to separately or jointly execute a release deed or gift deed mentioning their intention to give up their share. This has to be done out of their free will.
