Stamp Duty On Gift Deed

What is a Gift Deed?

A gift deed is a legal document that gives details regarding the voluntary transfer of a gift from the donor(i.e. owner of the property) to the donee (i.e. receiver of gift) without any compensation or favor in return. A gift deed can be made for both movable goods as well as immovable assets. A gift deed for an immovable property involves the gifting of some immovable property like a house. Similarly, a gift deed for a movable property involves the gifting of movables like a car or cash. A gift deed describes every detail of the transaction as necessary by law.

The Supreme Court in the case of Naramadaben Maganlal Thakker v. Pranivandas Maganlal Thakker and others held that “Gift means to transfer certain existing moveable or immoveable property voluntarily and without consideration by one person called the donor to another called the done and accepted by or on behalf of the donee”.

Features and Essentials of a Gift

  • Transfer of Ownership: For a valid Gift, it is important that there should be a complete transfer of rights of property from the donor to the donee. If there is no transfer of ownership, a Gift would be invalid.
  • Property in Existence: A gift is required to be made only of that movable or immovable property that is in existence today. This means that a gift of future property cannot be made. An individual can thus gift his/her share that he/she has obtained after the partition of joint family property.

In the case of Gomtibai v. Mattulal, it was held by the Supreme Court that in the absence of a written instrument executed by the donor, attestation by two witnesses, registration of the instrument, and acceptance thereof by the donee, the gift of immovable property is incomplete.

  • No Consideration:
    Consideration means monetary consideration and does not involve love and affection. The most important aspect of a Gift is that the donor does not take any monetary benefit/consideration from the done in return for the property gifted. If any consideration is a part and parcel of this situation, then, it would be a sale and not a gift.
  • Free Consent:
    A voluntary transfer of ownership of the property should be made and the consent of the donor should be free and not under any undue influence or force or fraud. If there is a gift under any coercion or undue influence, it would not be a valid gift.
  • Donor’s Capacity:
    A donor should be a major i.e. above the age of 18 and should be of sound mind. A donor should have the capacity to contract and should not be disqualified in any other way. Only then a gift will be a valid Gift transfer.
    As held in K. Balakrishnan v. K. Kamalam (AIR 2004 SC 1257), if the donor is gifting property to his own minor child, acceptance can be presumed to have been made by him without any overt act signifying acceptance by the minor.
  • Acceptance of the Gift:
    The donee should accept the gift himself. Apart from this, it is also important that the acceptance of the gift should be given during the lifetime of the donor when he/she has the capacity to gift.

What is Stamp Duty?

Generally speaking, stamp duty refers to the tax levied by the government during any transaction of a property. A physical stamp is attached or impressed on the legal document for the transaction of property that denotes that tax has been paid. When a property is gifted to you mere physical possession is not sufficient. You also need to have legal evidence of ownership of the property which is done after paying the registration charges and stamp duty. Stamp duty is levied and collected by the state government. It is the direct tax that is payable under section 3 of the Indian Stamp Act, 1899 on all documents of financial transactions including bills of exchange, promissory notes as well as property transactions. Stamp duty charges vary from state to state.

Who is Liable to Pay Stamp Duty on Gift Deed?

If the donee pays the stamp duty, it can amount to consideration (price) paid by the donee for the gift under the Transfer of Property Act. Since there cannot be a consideration in a gift deed, the deed may be considered void when the donee pays the stamp duty. So, the donor is responsible for paying the stamp duty.

What are the Factors affecting Stamp Duty in India?

As mentioned above, stamp duty varies from state to state. However, there are certain factors that determine the amount of stamp duty that has to be paid:

  1. Location– Different areas have different stamp duty rates. For example, if your property is located in a municipal area, you would have to pay a higher rate than a property located in a rural area.
  2. Age of the building– Since the stamp duty rates are calculated as a percentage of the total market value of the property, therefore, the age of the property plays a crucial role. Old buildings usually attract less stamp duty charges and new buildings attract a high charge. This is because the market values of old buildings depreciate.
  3. Age of the Owner– Almost all state governments have subsidized stamp duty charges for senior citizens. So, the age of the owner plays an important role in determining the charge.
  4. Gender of the owner– Just like senior citizens, women also get a concession on the stamp duty rate if the property is in her name.
  5. Purpose– Commercial buildings attract a high stamp duty fee when compared to residential buildings. This is mainly because commercial buildings would need more amenities, floor space, and security features.

Tax Implications of Gift Deed

Gifts are taxed under Section 56(2)(x) of the Income Tax Act, 1961, after 1 April 2017. Under Section 56(2)(x)(a), when any person receives a sum of money exceeding Rs.50,000 without consideration as a gift, then the whole of the gift amount will be taxed in the hands of the donee under the head ‘Income from other sources.

Under Section 56(2)(x)(b), when a person receives an immovable property without consideration as a gift, and the stamp duty value of the gift deed exceeds Rs.50,000, then the stamp duty value of the property is taxable in the hands of the donee.

However, if the property or amount is received from any of the following persons, then the taxation on the gift is exempted, and the donee will not be taxed:

  • If the gift is received from relatives, or
  • If it is received on the occasion of the marriage of the individual, or
  • If it is received under a will or by way of inheritance, or
  • If it is received in contemplation of the death of the donor, or
  • If it is received from a local authority (defined in Explanation to Section 10(20) of the Income Tax Act), or
  • If it is received from any fund, university, foundation, other educational institution, other medical institution, hospital, trust, or institution referred under Section 10(23C) of the Income Tax Act, or
  • If it is received from any trust or institution registered under Section 12A or 12AA, or
  • If it is received by an individual (donee) from a trust established or created solely to benefit the individual’s relative.

Conditions to revoke a gift deed

Under Section 126 of the Transfer of Property Act, revoking the deal must not be possible unless and until the donor specifies in the written contract that he will keep with himself the right to take back the gift. It is important to have a clause or understanding between the donor and the recipient under the circumstances the gift deed can be revoked. This can be a failure or any particular incident. The condition for revoking the gift deed should be accepted by the recipient while receiving the gift and it should not be based on the will of the donor alone. Any gift that was not based on fraud activity cannot be unilaterally revoked. In such cases, the donor and the recipient need to move to the court for revoking it.

In the case of Abhachari v. Rama Chandrayya, the court held that if a man improvidently binds himself up by a voluntary deed, and does not reserve liberty to himself by a power of revocation, the Court will not lose the fetters he has put upon himself, but he must lie down under his own fault.

Reference

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