Stamp duty and tax on gift deed of a property

A gift deed is a signed legal document that transfers ownership of real, personal, or intellectual property from one person or institution to another voluntarily.

The property that can be gifted under Indian Laws should have the following properties:

  • It should be movable or immovable
  • It should be transferable
  • It should be tangible
  • It should not be a future property

Unlike a typical gift transaction, gifting house property has a specific income tax and stamp duty norms.

Stamp Duty Implications

The government levies a compulsory tax on the transfer of rights in a property, known as ‘stamp duty. It is charged on residential and commercial property transactions, as well as freehold or leasehold properties. Stamp duty on registration of various instruments is imposed under the Indian Stamp Act, 1899; and are comparatively high in India, about 5% and above.

Some key facts on Stamp Duty levied on property transactions are:

  • Judicial and Non-Judicial Stamp Duty – Stamp duties may be judicial or non-judicial. The stamp duty on property transactions falls under the category of non-judicial charges as it is a one-time payment based on the value of the transaction. The Indian Registration Act, 1908; explains the documentation procedure laid down, and the Government maintains the registry of documents.
  • Registration Charge – is the cost users pay for the service of putting a contract or a deed in the government’s records. It is a legal document.
  • Body to Impose Stamp Duty – The states can determine stamp duties as per the specific state policies. Stamp duty charges in Indian states vary between 3% and 10% of the property value.
  • Stamp Duty Calculation – The value of the transaction is the single most significant factor, based on which the stamp duty is calculated for a property. As they are called, the Circle Rates is the responsibility of the district administrations below which a transaction cannot be registered.
  • Other Factors – Concessions in stamp duty are given when the gift deed is executed between close relatives. Some states may lower stamp duties for senior citizens and women.
  • In case when a property is gifted to any other person, the stamp duty rate is 5% in panchayat areas and 6% in municipal areas, corporation areas and urban areas. Suppose the market value of the property is more than Rs. Forty lakhs, then an additional 1% stamp duty is charged in both urban and rural areas.
  • The registrar shall ensure that proper stamp duty has been affixed on the gift deed/document when presented for registration.
  • Responsibility of Stamp duty payment – The buyer is responsible for paying the stamp duty, as well as the registration charge, even though nowhere does the law specify that the buyer must bear the cost.

Tax Implications

In India, property transfers as gifts are governed by the Transfer of Property Act, 1882 (“Act”). The clauses in a Gift Deed are Details of the Donor and the Donee, Consideration of love and affection for gift transfer, Voluntary Transfer, Ownership of property, Property details, Right of the Donee, Acceptance by the Donee, Delivery, Witness and Revocation.

After 1 April 2017, Gifts are taxed under Section 56(2)(x) of the Income Tax Act, 1961. The gifts may be in the form of an Immovable Property as Land Building, Jewellery, Cash, drawings etc.

  • If any person receives a sum of money exceeding Rs. 50,000 without consideration of a gift, then the whole gift amount will be in taxed the hands of the done under ‘ Income from other sources’ – Section(2)(x)(a),  
  • Suppose a person receives an immovable property without consideration as a gift, and the stamp duty value of the gift exceeds Rs. 50,000. In that case, the stamp duty value of the property is taxable in the hands of the done.

Tax is exempted for the done in the following cases when the gift is received as:

  • on the occasion of marriage
  • by way of will or by way of inheritance
  • in contemplation of death of the donor
  • from a local authority (defined in Explanation to Section 10(20) of the Income Tax Act)
  • from any fund, university, foundation, other educational institution, other medical institution, hospital, trust or institution referred under Section 10(23C) of the Income Tax Act
  • from any trust or institution registered under Section 12A or 12AA, or
  • An individual from a trust established or created solely to benefit the individual’s relative.

Gift Deed Myths

  • Only self-acquired property can be gifted, of which you are a sole owner. Any shared property cannot be gifted.
  • There cannot be any tax implications since it is a gift
  • A property gifted by a mentally and emotionally unfit person may be considered null and void.

Revoking a Gift of Property

Revoking a gift will not be possible unless the donor specifies in the registered contract that he keeps with himself the rights to take back the gift, as stated Under Section 126 of the Transfer of Property Act.

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