The title of a gifted property is transferred through gift deeds. For a gifted property to be duly transferred from one party to another, several different types of fees must be paid in relation to the gifted property.
Firstly, it is important to know what type of property can be made gifted property. There are several caveats to which properties can be gifted property.
Requirements for gifted property
- Not all types of property clear the requirements for gifted property.
- If a property has been promised to you through a will, you cannot transfer it as gifted property to another person before the will is enacted by the testator’s death.
- A mortgaged property cannot be transferred as a gifted property without clearing the mortgage placed upon it first.
- A jointly-owned property cannot be transferred as gifted property without dividing ownership of the property through a partition deed.
Tax encumbrances on gifted property
- Income tax does not have to be paid on gifted property if the transfer of property is between relatives. This is to promote gratuitous transfers and avoid unnecessarily taxing transfers within a family.
- However, income tax does have to be paid on gifted property that is transferred between non-relatives. If the property has a value of over Rs. 50,000, it will have to be recorded on your income tax filing under the “income from other sources” heading.
- Stamp duty must be paid on gifted property according to the Indian Stamp Act of 1899. The stamp duty that must be paid in each state is clarified through relevant amendments to the Indian Stamp Act by the State Legislature.
- In most cases, stamp duty is levied at a percentage of the value of the gifted property. For instance, in Delhi, the stamp duty payable varies from 4% to 6%.
- Stamp duty rates are further qualified on the basis of either gender, or the relation between the parties. Taking the example of Delhi once again, the stamp duty payable on gift deeds for women is 4%, whereas it is 6% for men.
- In Karnataka, the stamp duty for transfers between family members is Rs. 1,000, while it is levied at a rate of 5% for non-family members.
- Other grounds for differentiation on stamp duty rates also exist, including the value of the property and the area in which it is located.
- According to the Registration Act of 1908, all gifted property must be duly registered with the Sub-Registrar’s Office.
- The value of the registration fees is usually lower than the stamp duty, and merely serves as an additional fee to ensure the smooth functioning of the Sub-Registrar’s Office.
- Similar to stamp duty rates, the registration fees vary from State to State. In most cases, the registration fee is a percentage of the value of the gifted property. In some areas, such as Karnataka, the registration fee for gifted property changes based on the relation between the parties.
Contents of a deed for gifted property
- Details of both of the parties: The deed for gifted property outlines the details of the parties involved in the transaction. Their names, ages and addresses are recorded in the deed for gifted property. The deed should specify the relationship between the person who is gifting the property, and the person receiving it.
- Details of the gifted property: The deed meticulously details all relevant information about the gifted property. The deed discusses information like the address, structure, colour, location, surrounding and place of the property.
- Lack of consideration: The lack of consideration clause specifies that the gift is being given without any consideration. A Gift deed is a gratuitous form of exchange, which means there is no consideration of any form being given in exchange for the property, and the title to the property is transferred out of love and affection. Gifted property does not require consideration.
- Rights and liabilities: The deed for gifted property explains the rights and liabilities of both the parties.
- Rights of the donee: The deed lists the rights that the donee possesses in relation to the gift. The deed may specify that the donee enjoys the right of quiet enjoyment, the right to rent the property, and the right to perform renovations on the property.
- Delivery clause: The delivery clause explains how the party that is gifting the property will deliver the property to the receiver of the gift.
- Revocation of gift: A deed for gifts states the possible grounds for revocation of the gift. The deed can be revoked either by a mutual consent of both parties, or by terminating the contract between the two parties.
How to register a deed for gifted property
Registering a deed for a gift has the following process:
- Create a deed: Get a deed drafted by a verified lawyer to ensure that there are no unintentional clauses that harm your interests.
- Get witnesses’ signature on the deed: The deed will require 2 witnesses to attest to the document’s authenticity.
- Discuss your requirements with a lawyer: Schedule a call with a lawyer to explain your requirements. They will inform you about the registration process and intimate you as to whether there are any further formalities to be dealt with.
- Estimate the value of the gifted property: The value of the property must be ascertained to determine the value of stamp duty and registration fees to be paid.
- Pay the stamp duty: Pay the necessary stamp duty amount to ensure that the deed is not vitiated on technical grounds.
- Schedule an appointment at the Sub-Registrar’s Office: Choose a date and time to get your deed registered at the Sub-Registrar’s office.
- Pay registration fees at the Sub-Registrar’s Office: Pay the necessary registration fees, which are usually calculated on the value of the property being gifted.
- Present relevant documentation at the Sub-Registrar’s Office: Present the required documents, which includes the original deed, photographs of the parties and the witnesses, the donor’s PAN card, and other documents.
- Registrar will officially record your deed: After all this, the Registrar will record your deed, which gives it legal authority.
Gifted property requires a registered gift deed to be legally valid. Apart from the registration fees, income tax may be applicable for the donee, depending on their relationship with the donor, and the donor would have to pay stamp duty to initiate the transfer of title of the property.