Gift Deed and Income Tax
Gift Deed and Income Tax A gift deed is a legal document used to transfer ownership of property or money from one person (donor) to another (donee) without any monetary consideration. While gifting property or other assets may seem straightforward, there are legal and tax implications you need to be aware of. In this blog, we will discuss the concept of gift deeds, the registration process, and the income tax implications as per Section 56(2)(x) of the Income Tax Act, 1961.
Types of Properties in Gift Deeds
Gifts can involve two types of properties:
- Movable Property: This includes cash, jewelry, vehicles, shares, and bonds.
- Immovable Property: This includes land, buildings, or any form of real estate.
Registration of Gift Deeds Under Section 123 of the Transfer of Property Act, 1882
Under Section 123 of the Transfer of Property Act, 1882, the legal process for registering a gift deed varies depending on whether the property is movable or immovable.
Movable Property:
Gift Deed and Income Tax A gift of movable property is valid when delivered physically or through a registered gift deed. Physical delivery could be handing over a car, jewelry, or other movable items directly to the donee. Gift Deed and Income Tax Alternatively, a registered gift deed signed by the donor and the donee, with the attestation of two witnesses, can also be used to gift movable property.
Immovable Property:
A gift deed for immovable property must be registered for the transfer to be valid. The registration process involves drafting the gift deed on stamp paper, signing it by both the donor and donee on every page, and attesting it by two witnesses. The gift must be accepted by the donee during the lifetime of the donor, and the donor must be of sound mind at the time of the gift.
The value of the stamp paper used for the gift deed varies from state to state, and it’s essential to ensure that all local regulations are followed for the registration to be legally binding.
Tax Implications of Gift Deeds under Income Tax Act, 1961
As per Section 56(2)(x) of the Income Tax Act, 1961, gifts are taxable if their value exceeds a specified threshold, which is currently set at Rs. 50,000. Let’s explore the various scenarios under this law.
- Gifts in the Form of Money
If a person receives a sum of money exceeding Rs. 50,000 without any consideration (i.e., as a gift), the entire amount is considered as ‘Income from Other Sources’ and is taxable in the hands of the donee.
For example, if you receive Rs. 75,000 as a gift from a non-relative, the entire Rs. 75,000 will be added to your income and taxed according to your applicable tax bracket.
- Gifts of Immovable Property
When an immovable property is gifted without any consideration and its stamp duty value exceeds Rs. 50,000, the stamp duty value is taxable in the hands of the donee.
For instance, if a plot of land worth Rs. 10 lakh is gifted to you, and the stamp duty value exceeds Rs. 50,000, then the entire stamp duty value will be taxed as your income under ‘Income from Other Sources’.
- Gifts of Movable Property
Gifts of movable property like jewelry, shares, paintings, etc., are also taxable if their fair market value exceeds Rs. 50,000. The donee is liable to pay tax on the entire market value of the asset.
Exemptions from Taxation on Gifts
While most gifts above Rs. 50,000 are taxable, there are several exemptions where gifts are not taxed, even if they exceed the threshold limit. These include:
- Gifts from Relatives: Gifts received from certain relatives are fully exempt from tax, regardless of the amount or value. The term ‘relative’ is specifically defined under the Income Tax Act to include:
- Spouse of the individual.
- Siblings of the individual or the individual’s spouse.
- Siblings of the individual’s parents.
- Lineal ascendants (parents, grandparents) and descendants (children, grandchildren) of the individual or the individual’s spouse.
- Spouse of any of the persons listed above.
- Gifts on the Occasion of Marriage: Gifts received on the occasion of an individual’s marriage are exempt from tax, regardless of who gifts them and the value of the gift.
- Gifts through a Will or Inheritance: Gift Deed and Income Tax Gifts received as part of a will or through inheritance are not taxable.
- Gifts in Contemplation of Death: If a gift is made in contemplation of the donor’s death, it is not subject to tax.
- Gifts from Trusts or Charitable Institutions: Gifts received from trusts or charitable organizations that are registered under Section 12A of the Income Tax Act are also exempt from taxation.
Key Takeaways
- Gift deeds are legally valid for transferring movable and immovable properties but must be registered in specific cases.
- Section 56(2)(x) governs the taxation of gifts, with gifts exceeding Rs. 50,000 being taxable in most cases.
- Several exemptions exist, particularly for gifts from relatives, on occasions like marriage, or through wills and inheritance.
- The donee is responsible for paying the tax on gifts, and it is crucial to report any taxable gifts under ‘Income from Other Sources’ while filing your income tax return.
Conclusion
Gift deeds are a convenient way to transfer ownership of properties and assets, but both the donor and donee must be aware of the legal and tax implications involved. Proper registration, especially for immovable properties, and adherence to tax laws are essential to ensure that the gift is legally binding and tax-compliant. Gift Deed and Income Tax Always consult a legal expert or a tax professional to guide you through the process, especially if the value of the gift is substantial or involves complex assets.
Gift Deed and Income Tax By understanding the rules under Section 123 of the Transfer of Property Act, 1882, and the tax implications under Section 56(2)(x) of the Income Tax Act, you can ensure that your gift transaction is both legally and financially sound.
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