What is a Gift Deed?
If you give away property or something valuable to another person (relative or others) without receiving any money in return, it is a gift.
A gift deed is a legal document to transfer the property from a donor (owner of the property) to a donee (a person who receives the property as a gift) without any consideration. It is valid only if it is registered at the Sub-Registrar Office in the area where the property is located.
What should be included in a gift deed?
Apart from the details of the property, donor, donee details, a gift deed should include the relationship of the donor with the donee, and the details of how to take possession of the property if donee accepts the gift.
Why do you make a gift deed?
If you want to transfer ownership of the property to your close relative without receiving anything in return, you can make a gift deed.
Sometimes, a gift deed is preferred over a will as you can transfer the ownership immediately to the donee. In case of a will, the donee will get the ownership only after your death.
As a gift deed is registered, it makes the transfer legal. Whereas, the transfer through a will may be prone to litigation.
How do you make a legally valid gift deed?
The first step is to create a deed that contains details of the property, donor, donee which states that the property is gifted (without any consideration).
Then, get the property valued by an expert. It is done to calculate the stamp duty that must be paid at the time of registering the gift deed.
Next, you must print it on a stamp paper.
Take the signature of the donor, donee and two witnesses who can vouch for the transaction.
Finally, register the gift deed after paying the stamp duty and registration charges at the Sub-Registrar’s Office.
What are the documents needed while registering the gift deed?
The documents that are needed at the time of registration are as follows:
- Title deed of the property
- Proof of identity and proof of address of the donor, donee, and the witnesses.
- Encumbrance certificate.
- Give the details of the property.
When is a gift deed considered eligible?
A gift deed is eligible if it satisfies the conditions given below:
- You can gift movable or immovable property. In case of immovable property, the gift deed must be registered at the Sub-Registrar’s office.
- You can only gift a tangible (it must have a value and can be seen) and transferable property. For example, cash, jewellery, immovable property, painting, antiques, and so on.
- You can give a gift to a minor, whose guardian will manage and handover the property when the minor turns 18 years old.
- The donor must voluntarily gift it.
- The donee must accept the gift when the donor is alive. He can accept by taking possession of the property.
- The donor and donee should be alive when it is gifted. Therefore, you cannot transfer a house to an unborn child.
- The donor must be older than 18 years. A minor cannot gift any property to another person.
Why should it be registered?
If you are giving an immovable property as a gift, you must prepare a gift deed that must be registered at the Sub Registrar’s Office.
As the gift deed transfers the ownership of the property, the transfer becomes legal only when it is registered.
You can register the transfer within four months of executing the gift deed. Even in that case, the document will be valid from the date of execution and not from the date of registration.
To register a gift deed, you must pay stamp duty and registration charges as specified by the state government. The stamp duty rates are available here.
How much stamp duty do I need to pay in case of “gift deed” in Hyderabad?
The following table gives the % of stamp duty charged in case of a gift deed:
|When the Donee is||Stamp Duty||Registration Fee||Transfer Duty|
|A close relative (approved by the Income Tax Act)||1.50%||0.5% (min is Rs 1000; max is Rs 10000)||0.50%|
|Not a close relative||4%||0.5% (min is Rs 1000; max is Rs 10000)||1.50%|
Note: The stamp duty, registration fee and transfer duty are charged on the higher of the market value or consideration.
For more details on ready reckoner rate for stamp duty here.
- Income tax implication
According to the provisions of the Income Tax Act, if the value of gifts received is less than Rs 50,000, then it is exempt from tax.
If the value of the gift received is more than Rs 50,000, then it is included as income from other sources and taxed as per the income tax rate applicable.
If you gift an immovable property to a close-relative, such as parents, spouse, siblings, spouse’s siblings, and so on (as specified in the Income Tax Act), it is entirely exempt when you receive the gift.
However, when you sell the immovable property that you were gifted, then you have to pay income tax on capital gains as per the applicable rates.
For example, if you own the immovable property that was gifted for less than 3 years, the short-term capital gain is added to your income on which you will pay tax.
If you own it for more than 3 years, then the long-term capital gain is calculated at the rate of 20%. (in case of long-term capital gain, the cost of indexation is allowed).
After selling the property, if you invest the proceeds in buying another residential house or in capital gains bonds of Rural Electrification Corporation (REC) or National Highway Authority of India (NHAI), you don’t have to pay tax on the capital gains.
Also, it is assumed that the donor acquired the property with income on which he has already paid income tax.
Visit www.propertyadviser.in to know more about registration and stamp duty on the transfer of property.
By: Lotus Tech
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