Legal Guide

Everything you need to know about gift tax on property

by Bhavya Choudhary · 3 min read

gift tax on property

Introduction

  • The Gift Tax Act was introduced in India by the parliament in 1958, and only the receiver was charged for tax. Indians have a culture of gifting on occasions, and it is very necessary to know which gifts are taxable and which are not. Gift tax on the property is applicable under certain criteria which is mentioned below
  • As mentioned in the Income Tax Act of 1961, a gift is taxed as income in the hands of the recipient if its value exceeds Rs. 50,000.
  • Gifts received or sent to any individual, or Hindu Undivided Family (HUF) have provisions in regards to its tax/ stamp duty. 
  • Gifts received can be with sufficient consideration or without it. Gifts may elude tax, and it’s legally prohibited and punishable. But tax planning can be done within the structure of law.

Taxable Gifts

  • Certain kinds of transfers are also taxable, even if they are not considered a gift. If money is transferred in the worth of their movable or immovable property, it is still considered a gift tax on property.
  • In the movable category of taxable gifts, gift tax on the property can be applicable on art, bullion, and shares, and the Government has also taken virtual money or asset into their consideration. Cryptocurrency is also accepted as a gift tax on property.
  • In the case of NRI, gift tax on the property is paid by the receiver, and TDS is cleared by the donor only if the individual is a friend.

Exempted Gifts

Gifts are taxable when the value exceeds Rs 50,000, but if the recipient is a family member or a close relative, then the gift tax on the property is not applicable.

In the case of NRI, the gift received by a family member will not be taxed as gift tax on property and other scenarios: other situations may also count in the criteria that are not taken as gift tax on property. 

These are:

  • If the gift is received during the wedding of the recipient.
  • If the gift is received as an inherited part of a will.
  • Local authorities or educational institutions receiving cash or reward for merit is also an exception from tax.

Indian laws governing gift tax on property

  • n April 1958, the Government introduced gift tax which was administered by the Gift Tax Act, 1958 (GTA) to impose a gift tax on property (movable or immovable) sent or received under specific conditions. It was soon abolished in October 1998, and every gift was made tax-less.
  • A new form of gift tax on property was formed and included in Income Tax Provisions in 2004. 
  • Having a basic knowledge of such tax implementations will reduce the overall unplanned outflow of gift tax on property, and it is as much important to take legal consultation when exchanging anything legally.

Calculation of the gift tax on property 

There is a certain gift tax on property and stamp duty required when a person gifts or receives property in India. Gift tax on the property may depend on the stamp duty percentage, which is 2% to 7%, depending upon the state and regional area. 

Some states also offer exceptions in stamp duty for gifts exchanged by blood relatives.

Example:  States and their respective stamp duty of property value:

  • Maharashtra -3%
  • UP- 2%
  • Tamil Nadu- 7%
  • Delhi- 4%

Charges for registration of “Deed of gift.”

  • In most deeds that are related to property exchange, there is a certain registration charge that is required to make it legally authorized. 
  • A percentage of the property price shall be paid as stamp duty or gift tax on the property by the receiver. Some places may charge 1% of the market value of the property gifted.
  • Example: A person in Maharashtra is receiving a property worth Rs 1 crore, and the stamp duty of gift tax on the property is 3%. Then the individual must pay Rs 30 lakhs as the gift tax on property for accepting the deed of gift.
  • Gifts can be movable and immovable, but it is very important to obtain legal consultation before choosing which or what property is fit for a gift . Income tax makes exemptions if the property is transferred between families or closely specified relatives such as parents, spouse, siblings, and descendants. 
  • Just as one registers any other document or deed, a gift deed should be registered at the sub-registrar’s office. 
  • It is important to choose wisely because the receiver paying gift tax on the property should accept the gift of the donor.
  • There are several aspects of Indian law which mention what are the requirements of the estate to become a gift for anyone.
    • It should be convenient and registered.
    • It can be any movable or immovable property where a certain percentage of gift tax on the property is applicable.
    • It should not be mentioned in any other future will or deeds and must be substantial.

Conclusion

The laws enforcing gift tax on the property make the asset transfer more transparent to the donor and the donee. The property gifted can only be registered if the donor is the sole owner of the property and he is of sound mind and above 18 years of age. 

As per the Income-Tax Act, 1961, the gift deed will be registered as a sales deed if the case of delivering to a non-family is proximate. Also, a gift deed (movable or immovable property) can only be revoked if such is agreed by both the parties and the documents are signed and registered.

The increasing rate of tax planning using gift deeds has become subject matter to the tax department’s assessment. Thus, it is suitable to keep every document maintained and registered to avoid an unjustified predicament. Also, it helps administer the outpouring of taxes on such gifts received.

To get the gift deed enforced in the Court of law, it is essential that it must be registered. To ensure all the requirements to get the gift deed registered are met, one must consult a professional lawyer.

Bhavya Choudhary

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Bhavya Choudhary

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