While a gift deed of house/property does not require monetary considerations, it must be registered, and taxes should be paid in particular cases.
Gifting is an act or deed, through which a person willingly transfers certain rights in an asset to another person, without any consideration. Gifting of a house property has the certain income tax as well as stamp duty implications.
Legal requirements for gift deed in India
According to the Transfer of Property Act, the transfer of a house property under a gift deed has to be effected by a registered document or instrument, on behalf of or signed by the person gifting the property and must be attested by at least two witnesses. The registrar shall make sure that proper stamp duty has been attached to the gift deed or document when it is presented for stamping. An amount of stamp fees and registration costs payable, concerning a gift deed in India, is usually the same as that of a regular sale. However, if the gift deed is performed between some specified close families, some nations provide concessions in stamp fees.
For instance, Maharashtra used to have a cap on stamp duty payable on a transfer of an agricultural or residential property to one’s children, grandchildren, spouse or wife of a son who has died. Now, the stamp duty applicable is 3 per cent of the market value of the transaction.
Income tax implication
According to tax rules, the value of all the gifts received by a person throughout a year is fully excluded, as long as the sum of such gifts does not exceed Rs 50,000 in a whole year.
- If the price of all the gifts taken together rise above Rs 50,000, then, the total of the gifts received become taxable without any threshold exemption.
- While, income tax laws also give a desirable treatment, to gifts between two nearby relatives.
- Therefore, the gift of any asset (whether movable or immovable) made to particularly specified relatives, is entirely exempt from tax in the hand of the recipient, without any uppermost limit.
- The list of close relatives includes spouse, parents, siblings, siblings of the spouse, lineal ascendants and descendants of the person and his or her spouse. The list also includes the spouse of the above-mentioned persons.
If the house property is acquired as a gift from a relative, the first incidence of tax will rise, when you sell the property and land.
- The cost for income tax shall be received as the cost that was paid for the property by any of the prior owners.
- The profits shall be treated as long-term or short-term, depending on whether the aggregate of your holding period and that of the former owner who had actually paid for it, is longer than 36 months or not.
If the holding period as computed earlier is less than 36 months, the profit accrued from the sale of such property, shall be reviewed as short-term and will be added to your usual income and taxed at the relevant slab rate.
However, if the holding period is extended than 36 months, you will take the benefit of indexation on the cost of the property. Moreover, the option to claim exemption from payment of 20% long-term capital gains tax, by investing in a residential house or National Highway Authority of India (NHAI) or capital gains bonds of Rural Electrification Corporation (REC).