If you wish simply to transfer your house or any other property (such as share certificates) to your children, or a relative, there is no exchange of money. You are gifting it to them. To make this transfer valid, though, you need to create what is called a gift deed, register the agreement and pay stamp duty on the property.
As gifting is a voluntary action, the gift deed should mention that the deed has been made voluntarily and out of the donor’s own choice.
In a 2019 judgement, the Kolkata High Court opined that it is not necessary for the validity of a gift deed that it must be registered by the donor himself. Any subsequent registration of a gift deed after the death of the donor at the instance of the donee does not offend Section 123 of the Transfer of Property Act, 1882.
When the house or any property is transferred from the owner to another person without any payment is called the gift. The deed which is executed in this regard is known as gift deed. Mostly, such gifts are within the members of the family and there is no restriction. The gift deed has to be registered according to section 17 in the Registration Act , 1908 and the 123 section of the Transfer of Property Act.
What is a Gift Deed?
If immovable property is transferred from its owner to another party without payment, it is called a gift. A deed executed in this regard is a gift deed. Generally, such gifts are within the family, though there is no such restriction. However, gifts from relatives are exempt from tax.
A gift deed must be registered, as per section 17 of the Registration Act, 1908, and section 123 of the Transfer of Property Act. Failure to register the deed will render it invalid.
Gift Deed Format
Who Can Gift Property?
Anyone property owner capable of entering into a contract can gift said property. Therefore, only persons 18 or above, having sound mind, and able to contract under any law may gift property. A minor may accept a gift, but only through a natural guardian.
Stamp Duty & Registration
Once created, a gift deed will attract stamp duty (some states waive this duty in case of transfer to an heir), depending on the city. There is a 5% tax on the value of the property in Maharashtra and a 2% tax in Karnataka. Stamp duty will be paid on only the share of the property you are gifting. The deed must be registered once stamp duty is paid. Most states charge 1% registration fees. Bangalore has a ceiling of ₹ 30,000. At this time, in case of a co-operative housing society, the shares should be transferred to the recipient and the procedure is complete.
You can gift both movables (cash and investments) and immovables (a plot or flat). Only the latter requires a gift deed, while movable property may be transferred by delivery alone. Gift deeds may be made for even movable property if necessary. Particularly when dealing with large sums of money. The gift deed attests the willingness to transfer the property.
Details of Donor and Donee
The deed first states the date. Next, the donor (owner) of the property is introduced. It also mentions his age, occupation and place of residence. It then moves on to the details of the person in whose favour the property is being conferred, which is the donee. His age, occupation and place of residence have also to be mentioned.
Establish Ownership
The donor declares the property to be his sole and absolute ownership once the parties have been introduced. The address of the property can be mentioned or you can refer to another section of the deed that describes the location. You may also mention how long the property has been held.
Confer the Property
You may state the relationship between donor and donee, as well as the donor’s desire to give the property described to the donee without monetary compensation. Subject to the payment of the necessary taxes, the deed shall state that the property will be transferred along with the liberties, rights, title, privileges, easements, claims, demands, and benefits attached to it. The donor relinquishes his property rights.
When Delivery May Be Taken
Delivery of the property will also be stated. It is common for a gift deed to state: ‘The donee may, at any time, enter onto, take possession of, and enjoy the scheduled property peacefully and quietly as he deems fit, without interruption, claim, or demand whatsoever from or by the donor or his heirs, executors, and administrators. ‘
Details of the Property
It’s important to include the exact location of the property, including any areas immediately adjacent to its north, south, east, and west. Market value must also be mentioned. In addition, two witnesses must sign the document and record the stamp duty paid.
Tax Implications of Gift Deed
Gifts are taxed very differently from a regular sale, for obvious reasons. There are even major exemptions, when the gift is made to a family member or on the occasion of your first wedding. When tax is payable, though, it is to be classified as income from other sources, which means that it is to be added to your total income in the year and taxed according to the slab your income falls under.
Now Let’s Examine the Rules for All Common Cases
Gift from Relatives
Gifts from relatives aren’t taxed. Relatives include your spouse, brother, sister, the brothers and sisters of your parents, your spouse’s siblings, any descendant of your spouse, your spouse’s lineal descendant and the spouse of any individual mentioned above. The husband or wife of your spouse’s sibling also counts.
Gifts Received on Marriage
Gifts received on first marriage are not liable to tax, but those received on birthdays, engagements, and other festive occasions are.
Movable Property
You would have to pay tax on the entire amount if you receive movable property worth more than ₹ 50,000 from a person other than your relatives. You will pay tax on ₹ 53,000, not ₹ 3000, if you receive cash, shares, or jewellery worth ₹ 53,000. You must pay tax on the difference between the purchase price and the actual market value if the difference exceeds ₹ 50,000.
Immovable Property: When stamp duty exceeds ₹ 50,000, you will need to pay tax on the amount. Also, just as with movable property, if the amount you pay for an immovable property is less than the stamp duty value of such property by an amount exceeding ₹ 50,000, you will pay tax on such amount.
Depending on the city you live in, a gift deed created properly will attract stamp duty. There is a 5% limit in Maharashtra, a 2% limit in Karnataka, and a ₹ 30,000 limit in Bengaluru. The gift deed format must include the donor and donee, establish ownership, confer the property, and when it can be delivered. The deed is invalid if it is not registered.
Conclusion
In case you need any assistance in registration process, please feel free to contact our team at Vakilsearch or leave a comment below.
Also Read:
