Gifting a Property in India- Everything You Need to Know

Here is everything you need to know regarding gifting a property to another person in the country. There are some intricate aspects to the process so read on tight!

What do we mean by a gift of any property? This implies the transfer of a property to another individual where he/she gets it willingly from the giver without any favor/compensation in return.

The Main Act

Section 122 of the Transfer of Property Act of 1882 states that immovable property may be transferred via a gift deed. Just in the manner of a sale deed, a gift deed will have various details related to the property along with information on the recipient and transferor. However, it enables the transfer of ownership without any monetary exchange.

Some Other Pointers Worth Noting

• A gift deed is a legal document which covers voluntary gift transfer from the property owner to the recipient without any compensation/monetary return.
• The donor of the property should not be insolvent or use this mechanism for avoiding taxes or making gains which are illegal.
• Registration of a gift deed is mandatory with the sub-registrar as per Indian laws (Section 17 of the 1908 Registration Act and Section 123 of the Transfer of Property Act).
• The transfer will not have validity in case this is not executed.
• Once the registration of the gift deed is done, then the property title ownership may be changed.
• For the recipient of the gifted property to further execute a property transfer, the initial gift deed will be needed.

Property Conditions for Gifting

• Immovable or movable properties are eligible.
• Properties should be transferable in these cases.
• Should be existing and not any future properties.
• Should be real and 100% tangible in nature.
• The transferor and the recipient of the gift should both be alive at the time of gifting the property in question.

Gift Deed Basics- What You Should Know

Gift deeds are required to be specific while including all key elements for property transfer. The document should be drafted with a lawyer’s support. The following should be ensured:

• The deed should state the property details clearly.
• The recipient’s details should also be clearly stated.
• The deed should be signed by the individual who is gifting the property in question.
• Both the recipient and donor of the property should go to the Registrar’s office.
• The document is to be signed by a minimum of two witnesses.
• The deed should be suitably stamped with a non-judicial stamp, based upon the property value.

Eligibility For Creating Gift Deeds

Those owning properties may gift the same to other individuals. Exceptions are where donors or recipients are nominees. Minors will not have eligibility for signing contacts and cannot transfer properties as gifts to others. If the donor falls in this category, then the deed will be legally invalid. If the recipient is a minor, then a natural guardian may take a gift on his/her behalf. He/she will be the manager of the property that is gifted. Once the recipient becomes an adult, he/she will then decide to return/take the gift in case of an onerous gift as per law.

The guardians who are eligible to take gifts on the minor’s behalf or where the recipient is mentally unstable include the father, paternal grandfather, father’s executor, and paternal grandfather’s executor.

How to Gift Property- Knowing About the Process

Here’s taking a closer look at the procedure for gifting a property:

• Drafting the Deed – The gift deed is essential for legal property transfer and should be created with support from a lawyer. It will mention information about the property that is being transferred, the donor of the same, the recipient and other details. It will be the contract between the two parties, where the donor is gifting the property to the recipient or donee as called legally, and the latter accepts the same. The gift should be voluntarily done without any obligations, force or compulsions and without exchange of any consideration/money.
• Acceptance of the Deed – The legal acceptance of this gift deed is the next crucial step. The recipient should accept it during the donor’s lifetime. If the recipient does not accept the same, then the deed will become legally invalid. Validation/acceptance is possible through obtaining legal possession of the property and similar measures.
• Registration of the Property – Based on the Transfer of Property Act (Section 123), immovable property as a gift cannot have the title passed to another individual (the recipient in this case), until and unless it is legally registered. It is thus compulsory to get the deed attested by two official witnesses during the registration procedure and also after it is completed.

Gift Deed Registration- Vital Things to Keep in Mind

• The registration procedure is done at the office of the Registrar with your lawyer’s help.
• The first step is the property valuation by an approved and certified expert.
• Then the payment of transfer duty and stamp duty is required. This amount varies throughout Indian States and is based on the property type as well. Stamp duty is also lower for women in many States.
• Lawyers will help in finding the right resources for calculating the registration fees and stamp duty applicable on gift deeds.
• The stamp duty and transfer duty are 4% for women and 6% for men in New Delhi for instance. Registration charges are 1% of the total market value along with Rs. 100 as the pasting charge.
• In Bangalore, stamp duty of 5% is charged with cess and surcharge for donees who are not members of the family. Registration charges are 1% of the market value of the gifted property.
• Registration charges are Rs. 1,000 for family members as donees and stamp duty will be Rs. 5,000 within the BBMP/BMRDA/Corporation jurisdiction. For properties outside these limits, the stamp duty will be Rs. 3,000 with cess and surcharge. It will be Rs. 1,000 plus cess and surcharge for properties falling outside even the above two categories.
• Mumbai has registration and stamp duty charges of Rs. 200 and Rs. 100 respectively for residential and agricultural land where 1% is the LBT of the property’s total market value. For immovable property, stamp duty is 3% of the market value while registration fees stand at 1%. For non-family members, stamp duty is 5% while registration charges are 1%.
• Chennai has 1% registration fees on the market value, with stamp duty being 7% of the market value. Kolkata has 0.5% as the stamp duty on the market value for deeds created by family members while for non-family members, stamp duty is 5% (Panchayat areas) and 6% (municipal/corporation areas). If the value surpasses Rs. 40 lakh, then 1% will be the additional stamp duty payable. Fees may be paid via cheque, demand draft and cash at the sub-registrar’s office.
• For registering a gift deed, you will require documents like your Aadhar Card, PAN Card, passport and driving license.
• Based on the Section 23 of the 1908 Registration Act, the gift deed has to be shown to the suitable officer within a period of four months from its execution date. The final procedure of registration will require a minimum of one to three weeks as per estimates.

Taxation Aspects

• There was earlier the Gift Tax where the property donors had to pay an amount equivalent to the gift value. However, it was then done away with.
• In 2004-05, a new clause came into the Income Tax Act and this stated that gifts received from blood relatives/relatives, on the occasion of marriage, through will/inheritance or in contemplation of death of payer/donor will not be taxable.
• Gift from any local Panchayat, authority, municipality, university, foundation, firm, educational institution, hospital or other religious/charitable registered trust will not be taxable.
• Gift given to any trust/fund/educational or medical institution is not taxable.
• When gifts are received by HUF members upon capital asset distribution, it is not taxable. The same holds true when a trust gets a gift from an individual donor.
• Yet, putting all these exemptions aside, there are some gifts which draw gift tax, mostly if their aggregate value surpasses Rs. 50,000 annually. It will then be taxed in the form of income from an additional source.
• Gifts of assets between specified relatives are fully exempted from taxes without any upper limits.
• This list includes parents, siblings, spouse, siblings of spouse, descendants, lineal ascendants and so on.
• Hence, suppose an immovable property is gifted from a relative to an individual. The first taxation incidence will only arise when the recipient sells the property in the future.
• The cost will be taken as the one paid for the property by any previous owner. The profits may be taken as long or short term, depending on the holding period and the holding period of the earlier owner (who had paid for it) and whether this is within/more than 36 months.
• For holding periods lower than 36 months, profits on sale of property will be taken as short-term and will be taxed after addition to your income at the slab rate which applies.
• For holding periods surpassing 36 months, indexation benefits are given on the property cost along with an option for getting exemptions from paying LTCG (long-term capital gains) of 20%. This is possible by using the proceeds to invest in another residential house or capital gains bonds issued by the NHAI (National Highways Authority of India) or the REC (Rural Electrification Corporation).

What Else Should You Know?

• Gifts are immediately effective upon registration of their deeds.
• Wills are different since they come into play once their creators pass away.
• The legal effectiveness of the gift deed is only when the stamp duty payment is done and registration formalities are completed.
• You can take your gifted property back but this clause should be present in the gift deed. Under Section 126 (Transfer of Property Act), the deal may not be cancelled unless the donor has specified in the deed that he/she has the right to take the gift back.
• The condition for revoking the deed should be legally accepted by the recipient while taking the gifted property in question and it should not be based upon the donor’s will only.

Any gift based on any fraudulent transaction may not be unilaterally revoked. Both the recipient and donor should take legal course from the Court for revoking the deed in question.