What is the meaning of Gift Deed?
A gift deed, like a sale deed, contains information on the property, the giver, and the donee. The gift deed is not concerned with financial transactions since it simply transfers ownership to the recipient.
Gift deed registration must be done to enforce it in the Court of law.
Illustration of the Statute
Individuals are required by Section 17 of the Registration Act of 1908 to register gift deeds with the sub-registrar. In addition, section 123 of the Act states that a non-registered gift deed is void.
In addition, the registered gift deed holder is responsible for applying for the property’s transformation. The mutation procedure is an integral component of the real estate industry, which promotes the transferability of utility connections in favor of the beneficiary. In order to transfer the property, the beneficiary must provide a registered gift deed.
Procedure for Gift Deed registration
Instructions for Gift Deed registration are as follows:
A trained expert will examine the property associated with the gift deed.
- The donor and the donee will sign a gift deed in the presence of two witnesses.
- Submit the signed documentation to the sub-registrar closest to you.
- Take legal consultation to calculate the Gift Deed Registration Charges, including stamp duty. You must pay the required Gift Deed Registration Charges.
- Fees associated with the Gift deed registration must be paid.
- Stamp duty and registration fees are required for gift deed registration and should also be paid.
- In India, the state government decided on the registration fees for gift deed registration similarly to sale deeds. Prior to determining the gift deed registration cost, the market value of the given property is used to establish its worth.
Documents Required for Gift Deed Registration
Gift Deed Registration takes place at the office of the Registrar or Sub-registrar. To register a Gift Deed, however, significant identification and property papers are necessary, including:
- Original Gift Deed
- • ID Proof such as Aadhaar Card, Driving License, among others
- • PAN Card of both donor and donee
- • Evidence of the donor’s ownership, such as a sale document or title deed
- • Passport-size picture
- • Identification and address proof of witnesses
Steps for Gift Deed Registration
In India, the gift-giving procedure is divided into three categories. To make things simpler for you, we shall handle each component separately.
- Drafting a gift deed
Creating a gift deed is the first step in the giving procedure. Given that he/she is responsible for creating the gift deed, the presence of a lawyer is crucial. Typically, the draft includes information on the potential transferee and the asset to be transferred. It is important to highlight that financial transactions should not be conducted through gift deeds. - Acknowledgment of the Property
According to the relevant legislation, the donee must take property from the donor throughout the donor’s lifetime. If the donee does not accept the property from the giver, the gift deed becomes ineffective and void. - Gift deed registration
According to section 123 of the transfer of property statute, an unregistered gift deed cannot under any circumstance be considered a legitimate instrument. Two witnesses are required to testify to the gift-giving procedure
Gift Tax Exemptions in India
As mentioned, Income tax on gifts received is applicable when the total value of gifts exceeds ₹50,000 in a financial year. But, certain exemptions are available under income tax on gifts received, especially for gifts from close relatives or under special circumstances like weddings or inheritances. Below, we have given a detailed overview of those gift tax exemptions,
• Gifts Under ₹50,000: Gifts received up to ₹50,000 during a financial year are exempt from tax. This means that no tax is applicable if the total value of gifts received is below this threshold.
• Property Received for Inadequate Consideration: If property is received for a price higher than its fair market value, the difference between the stamp duty value and the consideration paid is treated as a gift. This excess amount becomes taxable. However, it is exempt if the difference is less than ₹50,000.
• Gifts from Relatives: As per the Income Tax Act, Gifts received from the following relatives are generally exempt from taxes on gifts.
o Spouse of the individual.
o Brother or sister of the individual.
o Brother or sister of the spouse of the individual.
o Brother or sister of either of the parents of the individual.
o Any lineal ascendant or descendant of the individual.
o Any lineal ascendant or descendant of the spouse of the individual.
o Spouse of the persons referred to in (2) to (6).
However, any income generated from these gifts might be taxable under clubbing provisions of Income tax gifts. For example, if a gift is invested and earns interest, the interest income may be taxable.
• Wedding Gifts: Gifts received by a newly married couple from their immediate family members on the occasion of their marriage are comes under the gift tax exemption. This includes cash, jewellery, property, stocks, or gold.
• Gifts by Inheritance or Will: Gifts received through inheritance or a will are exempt from gift tax under the Income Tax Act.
• Gifts from Local Authorities and Charitable Trusts: Money received from local authorities, charitable trusts, funds, foundations, universities, or registered charitable organizations are generally exempt from tax. This also includes money received by meritorious students or patients under medical care.
• Money Received in Contemplation of Death: Similar to inheritance, money received in anticipation of a person’s death is exempt from income tax gift.
How is the Taxable Value of Gifts Determined?
The Income Tax Act provides guidelines on how to calculate the taxable value of gifts, both monetary and non-monetary. Gifts are taxable if they exceed certain limits, and the taxes on gifts depend on the type and value of the gift received. The table below explains how the taxable value is determined for various types of gifts:
| Type of Gift | Gift Tax Applicability | Taxable Value of the Gift |
| Cash, Cheque, or Bank Transfer | If the total value of the gift exceeds ₹50,000 | The entire amount received as a gift is taxable |
| Immovable property (e.g., land or building) received without payment | If the Stamp Duty Value of the property exceeds ₹50,000 | The Stamp Duty Value of the property gifted is taxable |
| Immovable property bought at less than its Stamp Duty Value | If the difference between the Stamp Duty Value and the purchase price is more than ₹50,000 | The difference between the Stamp Duty Value and the price paid is taxable. Example: If the Stamp Duty Value is ₹6 lakh and the purchase price is ₹4 lakh, the taxable amount is ₹2 lakh (6 lakh – 4 lakh). |
| Assets like jewellery, shares, paintings, and sculptures received without payment | If the Fair Market Value exceeds ₹50,000 | The Fair Market Value of the asset is considered the taxable amount |
| Assets like jewellery, shares, paintings, and sculptures purchased and then gifted | If the Fair Market Value exceeds the original purchase price by more than ₹50,000 | The taxable amount differs between the Fair Market Value and the original purchase price. Example: If a piece of jewellery has a Fair Market Value of ₹3.5 lakh and was originally bought for ₹2 lakh, the taxable amount is ₹1.5 lakh (3.5 lakh – 2 lakh). |
Following these guidelines allows for accurate calculation of the taxable value of income tax gifts, ensuring compliance with tax regulations.
How to Declare Gift Tax in India?
Gift tax is a form of direct tax levied on a gift recipient. In India, the recipient is responsible for declaring the value of the gift in their income tax return (ITR).
- Determine Taxable Value: Calculate the taxable value of the gift. This typically involves subtracting any exemptions or deductions that may apply.
- Include in ITR: Report the taxable value of the income tax gift under the “Income from Other Sources” category in your ITR.
- Compute Tax Liability: The taxable value of the gift is added to your total income for the financial year. Use your income tax slab rate to calculate the tax liability.
- Pay Tax: Pay the calculated gift tax amount along with your other income tax liabilities.
Gift Tax Provisions Relating to Stamp Duty
The stamp duty value is crucial when calculating gift tax on immovable property. Similar to the provisions under Section 50C, the stamp duty value is considered for determining the taxable amount in the case of property gifts. However, this value can sometimes be higher due to various factors, such as delays between the agreement and registration dates. Below, we discuss key provisions related to stamp duty value for gift tax purposes:
• Stamp Duty Value on the Agreement Date: If there is a gap between the date of the agreement and the date of registration, the stamp duty value on the agreement date is used for calculating gift tax, provided the following conditions are met:
- The dates of agreement and registration are different.
- Part or full payment is made through an account payee cheque, bank draft, or electronic transfer on or before the agreement date.
• Disputed Stamp Duty Value: If a taxpayer disputes the stamp duty value used by the stamp duty authority, the tax officer must refer the case to a Valuation Officer (VO). The VO will review the records, offer the taxpayer an opportunity to present their case, and then issue a written order stating the value. The lower value determined by the VO can be considered for gift tax purposes.
• Relaxation under Section 56(2)(x): If the stamp duty value exceeds the consideration received for the gifted property, a relaxation of up to 10% of the consideration is allowed. This excess amount will not be considered income from other sources.
Conclusion
In conclusion, gift tax in India applies to gifts exceeding ₹50,000, with several exemptions available for specific situations, such as gifts from relatives, wedding gifts, and inheritances. While gifts are taxed under the “Income from Other Sources” category in the Income Tax Act, the provisions provide guidelines on how to determine the taxable value for various forms of gifts, including monetary, movable, and immovable property. Exemptions, valuation methods, and considerations related to stamp duty help ensure the fair assessment of taxes on gifts, thereby simplifying the tax process for recipients.
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