Skip to main content

Gifts to Relatives and Tax Implication

Properties when transferred to relatives as gifts can reduce charges and help save tax


   Everybody loves a gift. Gifts are always welcome, especially on occasions like marriage, birthday or anniversary. But did you know that you can help your close relatives save tax by giving a gift in the form of movable or immovable property? Gifting is increasingly being considered as an effective instrument to pass on a property to relatives.


A gift is some property that you give to somebody without consideration – that is without money. It is an off-market transaction.


The instrument of gift is an effective means to transfer property in cases where the donor and donee are relatives. The donor is the one who gifts the property, while the recipient is the donee.


But, if the parties involved are not relatives, it may not be a good idea to transfer a property as a gift, since they would not be entitled to tax benefits.


The procedure for making a gift is not complicated, but it varies for movable and immovable properties.

IMMOVABLE PROPERTY

To gift an immovable property, all you have to do is to get your gift deed registered and stamped. The transfer has to be effected through a registered instrument, signed by or on behalf of the donor, and attested by at least two witnesses.


A gift in the form of an immovable property needs to be registered. If the gift is an immovable property, the registration procedure is similar to the registration of a sale deed for an immovable property with the subregistrar.


Your gift transaction will attract stamp duty. "As per the Bombay Stamp Act, 1958, stamp duty is generally about 5% of the value of the immovable property in Mumbai and some other areas; in some rural areas, it is less than 5%," says Surana.


The stamp duty will, however, be lower if the beneficiary is a relative. "In such cases (when the property is gifted to a relative), the stamp duty is 2% on the market value of the property," says Dalal. This is one of the biggest advantages of using the instrument of gift to transfer property to your relatives, points out Surana.

JEWELLERY

Grandmas can legally pass on their antique jewellery as gifts to grand-daughters. This would not attract tax at the hands of the receiver. Also, registration is optional when movable properties like jewellery are transferred as gifts.
In the case of gifts in the form of a movable property, the registration procedure is not necessary as per the Indian Registration Act.
Movable properties, like jewellery, when physically transferred, can be backed by a gift deed.


When the property gifted is movable, it must actually be transferred and handed over to the donee; a mere entry in a register or account book is not sufficient.


Stamp duty is applicable even if the transfer of jewellery to relatives through a gift deed is not registered.


Stamp duty rates are different in each state, if you execute a gift deed, you have to pay 2% of the market value of the jewellery as stamp duty if it is transferred to people who are immediate relatives. For transfer to third parties, the gift deed is to be stamped at 3% of the market value of the jewellery. Usually, after transferring the asset to relatives, people just write the fact about such a transfer in an affidavit.

SHARES & SECURITIES

The process is a little different for transferring shares.


For transferring shares, the share transfer form needs to be submitted to the company or registrar and the transfer agent of the company. Also, under Section 18 of the Indian Registration Act, 1908, it is optional to register a gift deed purporting to a share transfer.


The stamp duty rules are also different. While gifting shares/ securities held in a demat format, there shall be no stamp duty applicable. Under the Indian Stamp Act, 1899, the stamp duty payable on shares transferred in the physical form would be . 0.25 for every . 100 (0.25%) of the value of shares being transferred.

TAX IMPLICATIONS

There is no tax implication in the hands of either parties in respect of transfer (by way of gift) of property (other than specifically exempt property) where the donor and donee are relatives.


However, gifts received during a marriage or from parents and grandparents, and gifts received by a daughter-in-law from her parents-in-law or by way of a will or inheritance, are exempt from tax at the hands of the recipient.


The income arising from the property shall not be clubbed with the donor in many instances. In such cases, if the recipient of the gift does not have taxable income or has taxable income liable to tax at lower rates, it may reduce the overall tax incidence. This in turn results in widening of the assets, income and wealth base resulting in tax efficiency under the Income Tax Act and the Wealth Tax Act.


But if you are gifting property to people who are not your relatives, then you will not be entitled to these benefits. An individual receiving property from an unrelated party through an instrument of gift is liable to pay tax at the applicable rates on the fair market value/stamp duty value of the property, or the cost to the donor, whichever is higher.

 

Popular posts from this blog

Mutual Fund Exit Load Changes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...

Birla Sun Life Mutual Fund Launches Birla Sun Life NIFTY ETF

Birla Sun Life has launched a new fund namely, Birla Sun Life Nifty ETF, an open ended exchange traded fund. The new fund will be open for subscription from 4th July to 18th July 2011, at an offer price of Rs 10 per unit. The investment objective of the scheme is to generate returns that closely correspond to the total returns of securities as represented by S&P CNX Nifty, subject to tracking errors. No exit load will be charged under the scheme. The performance of the scheme will be benchmarked against S&P CNX Nifty and will be managed by Satyabrata Mohanty.   -----------------------------------------------------------------   Also, know how to buy mutual funds online:   1) DSP BlackRock Mutual Funds: http://prajnacapital.blogspot.com/2011/05/buying-dsp-blackrock-mutual-funds.html   2) Reliance Mutual Funds: http://prajnacapital.blogspot.com/2011/06/buying-reliance-mutual-funds-online.html   3) Birla Sunlife Mutual Funds: http://prajnacapital.blogspot.com/2011/...

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...

Mutual Fund Reivew: Birla Sun Life Asset Allocation Conservative

Birla Sun Life Asset Allocation Conservative has numbers on its side to prove its credibility… Don't be surprised to find this Fund of Funds ( FoF ) in our recommendations. It has earned its place. And despite the difference in the structure of the product, there is no arguing with the numbers.   Of the total 6 years of its existence, the fund has been among the top 10 funds in its category in four of them. Last year it put up an average show and the only year it underperformed its peers was in 2008.   One aspect to look at when investing in an FoF is the expense ratio. The expense ratio of an FoF is capped at a lower limit of 0.75 per cent (2.50% for an actively managed fund). However, the FoF not only has its own expense (though lower) but even the expense ratio of the fund it is investing into. Fortunately, the fund manager takes that into account. "Expense is one of the important criteria used for fund selection and is the main reason for our investment in BSL Ind...

Short-Term Investment Options in Mutual Funds

Mutual funds offer liquid funds and ultra short term funds in the debt category, which are suitable for short investment periods. Ultra short-term funds were earlier known as liquid plus funds. Liquid funds invest in money market instruments with a maturity of 91 days or less. However, there are no such restrictions for ultra short-term funds. Who should invest in these? These are open-ended schemes. Investors with a short investment horizon or with surplus cash and low risk appetite should look at these. These could include corporate as well as retail investors. Those interested in staying invested for less than 15 days can opt for liquid funds. Retail investors who want to remain invested for two-four months, can look at ultra short-term funds. The short duration for both liquid and ultra short-term funds shields them from any interest rate volatility.   What kind of returns do they offer? In terms of an investment period less than 15 days, these funds are comparable to a ba...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now