Future Generali

What is a gift deed and tax implications

Any document that records gifting of movable or immovable property is considered a gift deed. A donor is a person giving the gift, and the donee receives the gift. For the deed to be valid, the donor must be solvent, and the gift deed must not be used for tax evasion. 

The complete process of 'gifting' through a gift deed can be divided into three steps. They are: 

  • Drafting of gift deed: Drafting of the deed is usually done through a lawyer. The draft of the gift deed suggests the transfer of property from the donor to the donee. 
  • Acceptance of gift: The signature of the donee is needed for acceptance of the gift deed. One essential factor is that the gift should be accepted during the lifetime of the donor. If not, it may stand invalidated. 
  • Registration of Deed: Stamp duty has to be paid corresponding to the value of the gift. The document also requires the signature of witnesses. Registration is done under the Transfer of Property Act. 
What are the tax implications of receiving a gift deed?

As per the Income Tax Act, a person is not liable to pay tax if the gifted amount does not exceed ₹50,000/- in a financial year. However, if the value of such gifts surpasses ₹50,000/-, they will be taxable under the "income from other sources" head.  Interestingly, this provision has been relaxed in certain situations. Under Section 56(2)(vii) of the Income Tax Act, the gifts are not taxable if an individual receives it from anyone belonging to blood relation as inheritance, at the time of marriage or in contemplation of death. 

In situations where a house property is received as a gift from a relative, the individual will be liable to pay tax only on the sale of the house. Depending upon the holding period (i.e. the time period from receipt of the gift up to point of sale), the gifts may be treated as short term capital gains or long term gains. If the holding period is less than 36 months, it will be considered a short term gain. If the holding period exceeds 36 months, it would be considered long term gains.

In cases where the donee is a minor, a natural guardian can receive the gift on his/her behalf. The guardian acts as a property manager and takes care of the same till the time the minor turns 18. 

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