Personal Finance

Choose the right way to transfer property

Bavadharini KS BL Research Bureau | Updated on February 14, 2021

If it is within the family, a Will is preferred as it doesn’t attract tax

Owning a home means many things -- a roof over your head, an asset whose value may increase over time and a legacy that you can pass on to your near and dear ones. You can transfer the ownership of your property to your family through different ways, depending on your situation. Here is what you should know.

Gift deed

As per Transfer of Property Act 1882, a property is said to be gifted only if it is transferred voluntarily. Also, a gift deed must be unconditional.

You can transfer property as gift to your family or outside of your family. Once a gift deed is executed, it is irrevocable and the transfer of ownership is immediate. Further, if you transfer property via gift deed to close family -- spouse, children, parents, sister or brother and grandparents, it is exempt from taxes . But gifts outside of family attract tax. That is, for any property with stamp duty value greater than Rs 50,000, tax is levied on the stamp duty value of the property. It is considered to be income from other sources and is subject to taxation based on the tax slabs.

When a property is transferred as a gift, it attracts stamp duty and registration charges. These costs vary with different States and some in fact, provide concession depending on the relationship. For instance, in Tamil Nadu, if the gift deed is executed in favour of family members (spouse, children and parents), then stamp duty rate is 1 per cent (up to a maximum of ₹25,000) and the registration charge is 1 per cent (up to a maximum of ₹4,000) on the market value of the property. If the property is gifted outside of family, then the stamp duty and registration charges are 7 per cent and 4 per cent, respectively on the market value of the property. In Maharashtra, if the property is gifted within family, the stamp duty works out to be ₹ 200.

You can’t gift a jointly-held property. Further, keep in mind that, gifts in India generally fall under the scrutiny of the tax department and, therefore, it is advisable to not only to maintain documentation but also register the gift deed.

Will

A property can be transferred through a Will as well. But the execution of the Will takes place only after the lifetime of the owner.

Property transfer under a Will is similar to that of a gift deed. However, unlike a gift deed where the ownership takes immediate effect and is irrevocable, a Will can be revoked or replaced any number of times during the lifetime of the person drawing it up. A Will need not be registered, but it is advisable to do so.

Property received under a Will is tax-exempt, even for non-relatives. Raghvendra Nath, Managing Director, Ladderup Wealth Management, says: “If the transfer is within the family, then it is always better to go with Will as inheritance doesn’t attract tax. Alternatively, if it is simply a question of convenience, say, between husband and wife or father and son, then transfer through gift deed makes sense.”

A property said to be transferred by Will only after the death of the owner of the property. However, after the death, the successor(s) needs to apply to the concerned civil authorities with the copy of the Will, succession certificate and death certificate for completing the property transfer process. Unlike other modes of transfer, property transfer through Will may take longer time.

Other modes

You can transfer the property through a relinquishment deed or a partition deed. That is, if you own a property along with other family members (brothers/sisters), and one of them wants to transfer the property to another co-owner, then relinquishment deed is executed. Under this deed, the property is transferred with or without any consideration. This deed attracts capital gains tax but only on the portion of the property that is relinquished, provided a consideration is paid.

Whether a property is relinquished with or without any consideration, stamp duty and registration charges apply at the time of registration but only on the portion that has been relinquished or released. This deed is used in the absence of Will where beneficiaries inherit the property equally.

Another way to transfer is through partition deed where the property is owned jointly by family members. This deed is used to divide the family’s shares in inherited properties. Post the execution of a partition deed, each member becomes an independent owner of his/her share in the property and is legally free to sell, rent or gift the asset. It is mandatory to register a partition deed and stamp duty and registration charges applies at the time of registration. However, a partition deed doesn’t involve payment of any consideration for the property, therefore, there is no tax.

Both relinquishment and partition deeds are irrevocable.

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Published on February 13, 2021
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