Gifted Property and Tax Implications 

Gifted property entails when someone willingly gives their property to someone else without getting paid for it. But here’s the catch – if the recipient sells the property, they might have to pay some taxes and duties on the profit they make. 

Now, if you’re thinking of gifting your property to someone, here’s what you need to know. It’s important to have a gift deed that has all the details of the donor and the recipient. You also need to register this deed with the sub-registrar and pay the stamp duty and registration charges.

But why do you need to register it, you ask? Well, it’s because only after registration can the new owner apply for mutation, which is essential for transferring utility connections or even selling the property in the future. So, make sure you’ve got everything in order before you gift your property away!

Taxes levied on a gifted property

Stamp duty and registration charges

When you transfer ownership of your property to someone else, you need to pay some fees and taxes. This is called stamp duty and registration charges. Usually, the amount of money you need to pay is the same as when you sell your property to someone else. However, in some states, you can get a discount if you’re transferring the property to a close family member.

For example, in Delhi, if you’re a woman, you need to pay 4% of the property value as stamp duty, while men need to pay 6%. You also need to pay 1% of the property value as registration fee, plus Rs 100 as pasting charges. Similarly, in West Bengal, if you’re selling your property, you need to pay 5% of the property value as stamp duty in rural areas and 6% in cities. However, if you’re gifting your property to someone who is not a family member, you need to pay the same amount of stamp duty as when you’re selling it. But if you’re gifting it to a family member, you only need to pay 0.5% of the market value as stamp duty.

Income tax

Income tax is only applicable when a gifted property is sold, and the seller earns some income or profit from the sale. According to the Income Tax Act, close relatives such as parents, spouses, siblings, siblings of the spouse, lineal descendants, and ascendants are fully exempted from tax.

When calculating income tax for a gifted property, the purchase price paid by the property’s previous owner is considered as the cost. However, the tax imposed will depend on the capital gain or loss derived from the property sale. Capital gain or loss is defined as the difference between the purchase price and the selling price of the property.

A legal expert named T Kalaiselvan, based in Chennai, explains that if the property is held for less than 24 months, it is treated as a Short Term Capital Asset (STCA). On the other hand, if the property is held for more than 24 months, it is treated as a Long Term Capital Asset (LTCA), and would attract Long Term Capital Gain Tax. According to the Union Budget 2017-18, the holding period for Long-Term Capital Gain (LTCG) for all immovable properties has been reduced from three years to two years, effective from the Financial Year 2017-18 or Assessment Year 2018-19.

In LTCA, the seller can benefit from indexation on the property cost and an exemption of 20 percent from LTCG Tax if the amount from the sale is invested in a residential house or in capital gains bonds of Rural Electrification Corporation (REC) or National Highway Authority of India (NHAI).

Overall, the gifted property also comes with its share of expenses, which may vary across states. Therefore, it is advisable to understand the tax impositions in the state where the property is located and plan expenses accordingly.

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