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Gift of property & its tax and legal implications

Gifting is an act, through which a person voluntarily transfers certain or all rights in an asset owned by him to another person, without any consideration. It may seem awkward that a donor is expected to pay a cost, to gift his property to another person, given the fact that they are not earning anything through the change of ownership of the property.

Legal requirements for gift As per the Transfer of Property Act, the transfer of a property under a gift, has to be effected by a registered instrument/document, signed by or on behalf of the person gifting the property and should also be attested by at least two witnesses. The registrar shall ensure that proper stamp duty has been affixed on the gift deed/document when it is presented for registration and pay applicable registration charges, which is normally lower than normal case. The amount of stamp duty and registration charges payable, with respect to a gift deed, are generally the same as in the case of a regular sale, however some states charge concessional stamp duty when the gift of property is to a relative as defined in the act. The value to be considered for stamp duty is current Reconer/circle rate value on the date of gift in respect to the property.

Gift comes into effect immediately

Owners gifting their property must be mindful of the fact that as soon as the gift deed is registered, the owner loses his ownership & all their rights, title & interest in the gifted property. The provisions of the gift deed, just like a sale or a relinquishment Deed, come into effect immediately. This is not true in case of a Will, the provisions of which come into force only after the creator of the Will passes away. However, do take note that a gift deed takes effect, only upon the payment of the requisite stamp duty.

Which property can be gifted?

You cannot gift everything that you own. If you are a Hindu, you may dispose of your self-acquired property. Similarly, if you are a coparcener, you may give away your coparcenary interest in a property, subject to fulfillment of certain conditions. A widow might in certain cases gift a small portion of the property inherited by her from her husband, but she cannot do so by will.

Gifts under Muslim Personal Law

Where donor a Muslim, the gift is called Hiba and is governed by the rules of Muslim Personal Law. For valid Muslim-gift, the only essential requirement is declaration, acceptance and delivery of possession. Registration is neither necessary nor sufficient. Oral gift made by a Muslim is valid irrespective of the value of the property gifted. However, according to Section 17 of the Indian Registration Act, if an immovable property worth Rs. 100 or more is gifted and the gift is made in writing, it must be registered. This section of the Registration Act is applicable to Muslims.

Can you take back your gifted property?

One can take back a gift but this aspect must be considered and covered in the registered gift deed. Under Section 126 of the Transfer of Property Act, revoking the deal will not be possible, unless the donor specifies in the registered contract that he keeps with himself the rights to take back the gift.

The Punjab and Haryana HC has also recently ruled that parents could revoke property transfers made to their children in case they are being harassed by them. Elderly parents can take back property gifted to son on ill-treatment as per Bombay HC order owing to the Maintenance and Welfare of Parents and Senior Citizens Act, 2007.

Giving its verdict in a case where a son opposed eviction from his father’s property, claiming it was an ancestral home, the Delhi High Court has ruled that harassed parents can evict their children from any type of property. The nature of the property, ruled the HC, would in no manner act a deterrent in eviction of children and legal heirs who ill-treat their elderly parents. The court ruled that after an amendment in the Delhi Maintenance and Welfare of Parents and Senior Citizens (Amendment) Rules, 2017, through which the term “self-acquired was done away with, seniors can apply for eviction of their “son, daughter and legal heir from the property of any kind ─ movable or immovable, ancestral or self-acquired, tangible or intangible”.

Can you challenge a Gift Deed?

A gift deed can be challenged in court on the basis of its legality subject to the law of limitation and proof of its illegality.

Who can give Gift Deed?

The owner of an immovable property can gift it to a relative or a third person. A gift is considered valid only if it is made voluntarily and without consideration. Only a person above 18 and of sound mind can gift the property.

Income tax implication According to income tax laws, the value of all the gifts received by a person during a year is fully exempt, as long as the total of such gifts does not exceed Rs 50,000 in a year. If the value of all the gifts taken together exceeds Rs 50,000, then, the aggregate of the gifts received become taxable without any threshold exemption. However, income tax laws also give a favourable treatment to gifts between two close relatives. Consequently, the gift of any asset (whether movable or immovable) made to certain specified relatives, is fully exempt from tax in the hand of the recipient, without any upper limit. The list of close relatives includes parents, spouse, siblings, siblings of the spouse, lineal ascendants and descendants of the person and his/her spouse. The list also includes spouse of the abovementioned persons.

A gift of property on the occasion of marriage will not be charged for income tax.

In the case of property received as a gift from a relative, the cost to the donor becomes the cost to the donee. The profits shall be treated as short-term or long-term, depending on whether the aggregate of your holding period as well as that of the previous owner who had actually paid for it, is more than 36 months or not.

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