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A gift deed is a legal contract that states the act of giving the gift which has been executed between two parties’ i.e.-Donor and Donee. In the act, the Donor is the person who is giving the gift in the respective act, and the Donor is the person receiving the gift in the respective act.
A gift under this deed can be either movable/immovable, tangible and transferable. It isn’t compulsory to execute a gift deed while giving an asset. However, it is recommended as it creates a documentary record which holds a legitimate and admissible record.
Essentials of a Gift Deed
- The Gift Deed should be done in
- Free Consent
- Should have the element of lawful consideration
- Legal Capacity
- Proper offer and acceptance
- Lawful agreement
- Without coercion, fraud, misrepresentation, undue influence.
- It should also specify the donor as a solvent.
Important Points to Consider while Drafting a Gift Deed
- A minor is not eligible to enter into a contract of gift deed. However, a legal guardian can be appointed to
- make the contract on the minor’s behalf.
- All gifts which are made to the relatives are exempt from The Income Tax Act, 1961.
- A gift deed which is once made cannot be revoked.
About Stamp Duty
- Stamp duty is a tax levied by the central government on the transfer of ownership for properties and real estate. It is governed by The Indian Stamp Act, 1899.
- The Stamp Duty to be incurred varies upon the property in consideration at the time of the registration. It also differs from state to state.
Essential points to Consider while Making Stamp Duty Payment
- The payment to be incurred under Stamp Duty needs to be paid in full.
- It needs to be paid accordingly when due or else may be subject to penalty under the law.
- It is to be noted that the document will be legitimate and will be admissible under the court of law.
Generally, the Stamp Duty needs to be paid either before the execution of the legal document or on the day of the execution. It can be even paid one day prior to the execution (working day).
The buyer of the property usually bears the stamp duty. However, when the exchange of property takes place, both the buyer and seller are liable for stamp duty in equal proportions.
Stamp Duty on Gift Deed
- Gifting of house property is subject to certain income tax and stamp duty payments.
Legalities involved in gifting a property
When gifting a property the registered document needs to be signed by the person acquiring the property and two witnesses’ needs to be attested along with it. It can be even signed on behalf of the person acquiring the property by their legal representatives as per The Transfer of Property Act.
The document will be subject to stamp duty and registration charges with respect to the gift deed. The amount in consideration is usually similar to that incurred in a regular sale.
The registrar shall ensure that the proper stamp duty has been affixed with the gift deed or document when presenting it for registration.
There are some concessions with respect to Stamp Duty when it is executed between specified close relatives. However, this is subject to the respective State’s laws pertaining to it.
Stamp Duty Rates for Major Cities
| City | Stamp Duty Rates |
| Stamp Duty applicable in Delhi | 4% – 6% |
| Stamp Duty applicable in Mumbai | 3% – 6% |
| Stamp Duty applicable in Kolkata | 5% – 7% |
| Stamp Duty applicable in Chennai | 7% |
| Stamp Duty applicable in Pune | 3% – 5% |
| Stamp Duty applicable in Ahmedabad | 4.90% |
| Stamp Duty applicable in Bengaluru | 5% |
| Stamp Duty applicable in Hyderabad | 4% |
Gift Deeds and Income Tax Implications
According to the Income Tax Act, 1961 there is no income tax applicable on the gifts received by a person as long as the value of the gifts does not exceed Rs 50,000.
In a scenario where the value of the gifts exceeds Rs 50,000 then the aggregate of the gifts becomes taxable without any threshold exemption.
It must be noted that the Income Tax Act favours gifts between two close relatives. When such parties are involved in a gift deed for asset exchange, it tends to be exempted from tax in the hands of the recipient without any upper limit.
Some of the close relatives under this law are parents, spouse, siblings and siblings of the spouse, son/daughter, grandson/granddaughter to name a few.
In Case of Sale of the Property
When selling the property, the tax will arise during the first incidence. The cost to be incurred for Income Tax will be taken as the cost paid for the property by the owners (previous).
The profits in this scenario shall be either treated as short term or long term considering the aggregate of the respective holding period.
If the holding period is less than 24 months, then the profit accrued on the property will be treated under short-term profit and will be added to the regular income. This profit will be then taxed under the respective slab rate.
If the holding period exceeds the period of 24 months, then the profit accrued on the cost of the property will have the option to claim tax exemption from payment of 20% of long term capital gains tax. This tax exemption can be claimed by making investments in a residential house or bonds (Capital Gains) of Rural Electrification Corporation (REC) or National Highway Authority of Indian (NHAI).