You are eligible to gift property that you own to your family members and anyone to whom you intend to retain the exclusive asset rights without meeting any conditions. Before you decide on gifting property to your blood relation, go through our article to access a complete guide on this topic.
Transfer of Property law or TPA enforced back in 1882 clearly defines the term ‘gift’ in Section 122. A gift can be any existing property that is moveable or immovable that the owner desires to transfer to a known person as an act of voluntary donation. Gifting of Property in Blood Relation is Always Best Way to make someone happy!
The gift is accepted by the beneficiary himself or someone who inherits the property on his behalf. Under the TPA, a gift may consist of mortgages, land, actionable claims, or some valuable goods. The donation of actionable claims such as insurance policies, shares, bonds etc., through gift deed, it is possible to post compliance with the Transfer of Property law.
Definition and Explanation of Gift Deeds in Blood Relation
A gift deed is a legal document that transfers ownership of property (movable or immovable) from one person (donor) to another (donee) without any monetary consideration. In cases of blood relations, this transfer often happens within families, typically from parents to children or between siblings. The deed serves as a written record of the gift and ensures legal clarity in terms of ownership transfer.
Tax Implications of Gifting Property in Blood Relation
Tax implications for gifting property in blood relations vary depending on the type of property, its value, and the specific tax laws of the jurisdiction.
In some countries, gifts to blood relatives may be eligible for exemptions or reduced tax rates compared to non-relatives. However, it’s crucial to consult with a tax advisor to understand the applicable taxes and any potential liabilities for both the donor and the donee.
Practical Guidance and Examples for Gifting Property in Blood Relation
Here are some practical considerations and examples for gifting property in blood relations:
- Motives and Timing: Determine your motivations for gifting and the desired timing of the transfer. Open communication with the beneficiary is crucial to avoid misunderstandings or unexpected consequences.
- Property Valuation: Get a professional valuation of the property to ensure fair market value is documented.
- Legal Assistance: Seek legal advice to draft the gift deed and comply with all legal formalities, including registration requirements.
- Tax Planning: Discuss tax implications with a tax advisor to minimize potential liabilities for both parties.
Example: A parent decides to gift a house to their child. They will need to have the house valued, draft a gift deed with the help of a lawyer, and register the deed with the relevant authorities. They will also need to be aware of any potential tax implications.
Step-by-Step Guide to Gifting Property
- Consult with a lawyer: Understand legal requirements and implications.
- Get a property valuation: Determine fair market value.
- Draft the gift deed: Clearly define the donor, donee, property, and terms of the gift.
- Sign and witness the deed: Both parties and required witnesses must sign.
- Register the deed: Make the transfer official with the relevant authorities.
- File tax returns: Consider potential tax liabilities and compliance.
Practical Example: Navigating the Gift Deed Maze
Let’s imagine you’re a parent considering gifting your beloved family home to your children. It’s a heartwarming gesture, but navigating the legalities can feel daunting. So, let’s break it down into manageable steps!
Scenario: You want to transfer ownership of your house to your two children equally. They’re both over 18 and eager to settle down.
Common Challenges and Solutions
- Family dynamics: Discuss openly with your children to ensure everyone’s on the same page. Avoiding any potential future misunderstandings is crucial.
- Financial implications: Consider how the gift might impact your own long-term financial security and healthcare needs. Talk to a financial advisor if necessary.
- Tax ramifications: Different tax rules apply to gifting within the family vs. to non-relatives. Consult a tax professional to understand the potential tax burden on both you and your children.
Legal Complexity and Compliance in Gifting Property
- Gift Deed: This legal document formalizes the transfer. Seek help from a lawyer to draft it correctly, ensuring all legal requirements are met.
- Registration: Register the deed with the relevant authorities to solidify the ownership change.
- Stamp Duty: This tax levied on property transactions varies depending on location and the relationship between donor and donee. Understanding these differences is crucial to avoid surprises.
Factors Affecting Stamp Duty on Gift Deed in Blood Relation and Non-blood Relation
- Relationship: In many jurisdictions, gifting property to blood relatives often attracts reduced stamp duty rates compared to non-relatives. Check your local tax regulations for specific details.
- Property value: The value of the gifted property may also impact the applicable stamp duty. This highlights the importance of getting a professional valuation beforehand.
- Exemptions and benefits: Some specific situations, like gifting to first-time homebuyers or disabled individuals, might qualify for exemptions or lower duty rates. Explore potential benefits that could apply in your case.
Key Features of a Gift
Before gifting property to your blood relation, you must understand: ‘what are the highlighted characteristics that define a genuine gift?’
The Gift must include
- Absence of contemplation
- A donor
- A recipient
- The actual gift or the subject matter
- Act of transfer
- Acceptance
In the next portion of the article, we have defined each element concerning a gift to some considerable extent.
Absence of contemplation: The true intent of the donor while gifting must be based on affection otherwise, the gift should be transferred to extend some spiritual upliftment. The idea of gifting something comes into consideration out of a gratuitous mindset and the Indian Contract Act has defined this condition vividly. Thus as per the Supreme Court, there must not be any financial consideration from the donor’s end, however minimal, as this ruins the basic essence of a gift.
Donor: Only two basic criteria are judged regarding the capacity of an owner who desires to gift his property, these are stability of mental health and majority. While gifting property to your blood relation, you must be in your full rational capacity. The Court approves the gifting procedure as long as the donor can comprehend the property transfer on his own; a mere lack of intellect is not adequate to stop the gifting proceedings. The property owner should be able to assess the consequence once the property is transferred, legally implementing valid instruments. Once an individual crosses 18 years of age, he/he is capable of issuing a gift deed.
Recipient: There are no such standards set by the law to measure a recipient’s eligibility while inheriting a property.
The person to whom the gift is being transferred must be alive while the gift deed is drawn. Not necessarily this has to be one individual; a gift deed may even include two or more candidates related by blood. The TPA law never prohibits gifting of property to any lunatic, minor or unborn child. Gifts can also be made to companies, institutions or religious organisations.
Exiting property: The gift assigned to someone should be an existent asset the owner can readily donate without any obligation. The property has to be a tangible element as per the Act. If your gift deed combines future potential property with an existing set of assets, then such a deed is considered void by law. Any portion of the property an owner inherits after the division of an Indian joint family can be forwarded as a gift to someone who is related by blood. Make the Registration of Property Online in Simple Ways in 2023!
Act of Transfer: Gifting property to your blood relation is possible for all tangible assets if the absolute proprietor generates the gift deed. Only the absolute landlord of property has the unfettered right to delegate ownership rights of that asset to someone. If this condition is not met the gift deed is declared void by the jurisdiction. This owner must completely renounce all the rights over this property, partial donation deed agreed on personal terms with the recipient cannot be sanctioned by the court.
Acceptance: The acceptance of any gift must be confirmed while the donor is still alive and has the full mental stability to make a rational judgment. The recipient may either express or imply this statement. The gift cannot be made if the recipient dies before acceptance. The recipient can refuse any gift if entitled to inherit two or more tangible assets; this will be their independent choice. Acceptance is expressed by either taking control of the property or possessing the gift deed generated by the proprietor. Possession shreds of evidence must be there to declare that the gifting has reached validation. A recipient has the right to turn down an onerous or non-beneficial asset.
Does the Inheritance of a Gift Make the Recipient Liable to Taxation?
Usually, the person making the gift is not required to make any tax payment for the assets he has renounced. But on some occasions, the beneficiaries are taxed as per the IT Act, 1961. They must pay tax under the section ‘Income from ancillary sources. Gifts can be tax exempted if relatives donate them at the time of marriage or property rights gained through inheritance or will; this clause has been stated in Section 12AA of the Income Tax law.
The beneficiary can be the owner’s sibling, spouse, spouse’s sibling and so on. Apart from these things, a property inherited by a person is taxable when the stamp duty amount of such an asset gained without contemplation eventually exceeds ₹50,000. The transfer order of any immovable property must be first registered and attested by the proprietor or someone on his behalf. There should also be the signatures of a minimum of two witnesses. Stamp duty is evaluated based on the property’s market value at the time of gifting.
However, one must note that these laws related to gifting properties to your blood relation are dissimilar from one state to another. For example, when you intend to gift your immovable property to someone related by blood in Rajasthan, usually you will be asked to pay 2.5% of the entire asset value as stamp duty.
Conclusion
Gifting property to loved ones is a common occurrence in India. However, some set rules must be followed with due respect while you intend to process a gift deed in association with legal support. It is not like a sale deed where the recipient has to pay a definite sum for the benefits granted to them.
Vakilsearch is an ultimate station with all your answers related to queries regarding property transfer to family members and loved ones. You can revisit our page to check the latest updates concerning the gifting of property in all states of India.
FAQs on Gifting Property in Blood Relations
Can a property be gifted in blood relation?
Absolutely! Gifting property to blood relatives is a common practice in many countries, including India. It allows you to transfer ownership legally and without any monetary consideration.
How do you gift a property to a family member in India?
Here's the basic process:
Draft a gift deed: A lawyer can help you draft a legal document specifying the donor, donee, property details, and terms of the gift.
Get a valuation: Have the property professionally valued to determine its fair market value. Register the deed: Register the deed with the relevant authorities to make the transfer official.
Pay stamp duty: Pay the applicable stamp duty, which may vary depending on the state and relationship between donor and donee.
File tax returns: Consider potential tax implications and file appropriate returns as needed.
Which property can not be gifted?
While most types of property, including houses, land, and investments, can be gifted, there might be exceptions based on your location and specific property type. It's best to consult a lawyer for clarity.
Which is better, a will or a gift deed?
Both have their advantages and disadvantages.
Gift deed: Takes effect immediately, provides clarity of ownership, and offers potential tax benefits for specific relationships. However, it's irrevocable and can have financial impacts on the donor.
Will: Takes effect only after the donor's death, offers more flexibility for changes, and doesn't impact donor's finances during their lifetime. However, it can be contested and may involve probate delays. Choosing the right option depends on your specific goals and circumstances. Consulting a lawyer and financial advisor can help you make an informed decision.
What are the disadvantages of a gift deed?
Some potential downsides include:
Loss of control: The donor relinquishes ownership and control over the property.
Financial impact: The gift may reduce the donor's available assets for future needs. Creditors' claims: Certain debts of the donor could potentially attach to the gifted property.
Tax Implications: While certain benefits exist, gifting can sometimes impact tax liabilities.
What is the Supreme Court Judgement on registered gift deeds?
Several SC judgements have affirmed the validity of registered gift deeds, emphasizing the importance of proper documentation and adherence to legal procedures. However, specific cases have also addressed challenges concerning undue influence, forgery, or violation of inheritance rights.
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