De-Tax. When are property gifts taxed?

It is common in India to gift immovable property within the family. While the tax law takes cognisance of this and does not provide for taxation of such gifts to specified relatives, there are situations when a gift of immovable property is taxed.

Here’s the low-down on when a gift is exempt from tax and when it is not.

Normally, the giver is not liable to tax on any gifts made by him. But gifts received are taxable in the hands of the receiver under the head ‘Income from Other Sources’ under the Income Tax Act, 1961.

However, the Act provides for specific circumstances where the gift will not be taxable when received.

This is in the case of gifts received from a relative; those received on the occasion of marriage; gifts received under a will or by way of inheritance/in contemplation of death of the donor or those received from any local authority/fund, foundation, university, other educational institution, hospital, other medical institution or any trust/any trust registered under Section 12AA.

But who is considered a relative in this section? A relative is defined as spouse of the giver, brother or sister, brother or sister of the spouse of the giver, brother or sister of either of the parents, lineal ascendant or descendant of the giver, lineal ascendant or descendant of the spouse of the giver and spouse of any of the above persons.

Outside of this, gift of immovable property received by an individual who is ordinarily a resident in India will be taxable if the stamp duty value of such immovable property (being land or building or both) received without consideration exceeds ₹50,000.

Else, if any immovable property is received for inadequate consideration (this means consideration is less than stamp duty value of property), the difference between the stamp duty value of such property and the consideration will be taxable. This is provided the difference exceeds ₹50,000.

For all purposes, the immovable property must be existing. A minor cannot give a gift since a minor is not capable of entering into contracts.

However, a guardian can accept gifts on behalf of the minor. A gift of immovable property amounts to its transfer under the Transfer of Property Act.

Hence, the gift deed needs to be compulsorily registered with the sub-registrar in the area where the property is situated. Stamp duty should be paid at the time of the transfer.

It is calculated as a percentage of the market value of the gifted property and differs from one State to another.

Documents such as copy of the gift deed, title deeds of the property, encumbrance certificate, statement of particulars of the property, its market value and the extract of assessment register of the property must be submitted at the time of registration. As per Finance Act 2013, tax will need to be withheld at 1 per cent in cases where at the time of the transfer of the property the stamp duty value of the property exceeds ₹50 lakh.

To qualify as a gift, it should be given either free or for an amount less than its value; there must be a donor and a donee. Taxation is determined depending on the nature of the gift, its value and the relationship between the donor and donee.

The writers are Partner and Manager at Deloitte Haskins & Sells LLP

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