In India, property transactions are regulated or governed by a combination of central and state laws and various other regulations. Among these transactions, one of the most common yet often misunderstood is a deed of gift, which is a very important and popular transaction of properties. Whether it’s a parent transferring property to their child, a husband gifting a house to his wife, or siblings exchanging land, the gift deed plays a crucial role, and it is also referred to as a personal transaction of property. This legal instrument also attracts a cost in the form of stamp duty—a government levy that cannot be avoided.
This article will deal and discuss and also will provide an detail analysis of stamp duty on gift deeds, covering its definition, importance, legal framework, calculation, state-wise variations, exemptions, and practical tips to avoid common pitfalls.
What is a Gift Deed?
A gift deed is a crucial legal document that allows one person (the donor) to voluntarily transfer ownership of movable or immovable property to another person (the donee) without any exchange of money or other kind. The Indian law governing gift deeds is the Transfer of Property Act, 1882, specifically under Section 122.
To be valid, the gift must be:
- It should be made voluntarily.
- It should not contain any monetary consideration.
- Accepted by the recipient.
- Documented in writing.
- Registered with the appropriate sub-registrar office.
Why is Stamp Duty Important in a Gift Deed?
A stamp duty is a form of tax levied by state governments on legal documents, particularly those related to the transfer of property. It also serves as a legal document that can be used as evidence of ownership and is mandatory under the Indian Stamp Act, 1899, or respective state stamp laws.
If you fail to pay the applicable stamp duty, it may result in certain legal consequences as follows:
- Legal disputes
- Rejection of registration
- Penalties and fines
- Weak legal standing in courts
So, even though a gift involves no payment between the parties, the transaction is still taxable in the eyes of the law.
How is Stamp Duty on a Gift Deed Calculated?
The stamp duty on a gift deed varies by:
- Type of Property – Residential, agricultural, commercial, etc.
- Location – Each state sets its own rates.
- Relationship Between Donor and Donee – Lower rates may apply for close relatives.
- Gender – Some states offer discounts for women.
The value of the property for stamp duty purposes is usually determined based on the circle rate (guideline value) or market value, whichever is higher.
Registration Charges Along with Stamp Duty
In addition to stamp duty, a gift deed also attracts registration charges, typically around 1% of the property value, subject to a maximum cap as provided in many states. This charge is paid at the time of registration with the local sub-registrar.
Who is Considered a Close Relative?
For stamp duty exemptions or concessions, most states define “close relatives” to include:
- Parents.
- Children, whether they are biological or adopted.
- Siblings.
- Grandparents and grandchildren.
- Spouse.
Some states may also include in-laws or step-relatives. Always check state-specific laws for clarity.
Exemptions and Concessions on Stamp Duty for Gift Deeds
Several states offer stamp duty rebates when the gift is made to close family members. For example:
- Maharashtra: Offers a flat ₹200 stamp duty when gifting to specified family members.
- Karnataka: Charges only ₹1,000 if the gift is made to a spouse or children.
- Tamil Nadu: Imposes only ₹100 for family gifts.
These exemptions are designed to encourage familial transfers without imposing high tax burdens.
Is a Gift Taxable Under the Income Tax Act?
Yes, gifts can be taxable under the Income Tax Act of 1961. However, gifts received from relatives are fully exempt, regardless of value.
Under Section 56(2)(x):
- Gifts from non-relatives exceeding ₹50,000 in value in a financial year are taxable as income under “Income from Other Sources”.
- Gifts from relatives (as defined under the Act) are not taxable.
- Gifts received on the occasion of marriage, will/inheritance, or in contemplation of death are also exempt.
So, if a father gifts property to his daughter, it’s not taxable. But if a friend gifts property, and its value exceeds ₹50,000, the recipient will have to pay income tax.
Documents Required for Gift Deed Registration
- Draft of the gift deed
- Identity proof of donor and donee, which may include Aadhar, PAN, etc.
- Address proof.
- Property documents (sale deed, tax receipts).
- Encumbrance certificate.
- Passport-size photographs.
- The stamp paper of the appropriate value.
- Proof of relationship (for claiming concession).
Procedure to Execute and Register a Gift Deed
- Drafting: Prepare the gift deed on stamp paper of appropriate value.
- Signature: Both donor and donee must sign in the presence of two witnesses.
- Visit Registrar: Go to the local sub-registrar office.
- Payment: Pay stamp duty and registration charges.
- Submission: Submit the signed deed and other documents.
- Verification: Registrar verifies the deed and identity documents.
- Registration: The deed is officially recorded and given back with a registration number.
Revocation of Gift Deed
Once executed and registered, a gift deed cannot be revoked unilaterally by the one party. It is irrevocable except:
- It should include a revocation clause provided under the deed of gift, and
- Both parties agree to cancel it
Courts may allow cancellation in cases of fraud, coercion, or misrepresentation.
Common Mistakes to Avoid
- Skipping Registration – An unregistered gift deed has no legal value.
- Incorrect Stamp Duty – Underpayment leads to penalties and invalidation.
- No Proof of Relationship – You may miss out on exemptions.
- Improper Drafting – Ambiguity can cause disputes.
- Ignoring Tax Implications – Consult a CA if the value is high or the recipient is not a relative.
Real-Life Example
A person donor Mr. Sharma, a resident of Delhi, wishes to gift his ₹1 crore flat to his daughter.
- Stamp Duty (Maharashtra): ₹200 (fixed for daughter)
- Registration Charges: 1% of ₹1 crore = ₹1,00,000
- Total Cost: ₹1,00,200
Since it is a gift from father to daughter, there’s no income tax. However, had it been gifted to a friend of Mr. Sharma’s, the friend would have to declare it under Income from Other Sources and then need to pay the tax amount as prescribed.
Conclusion
The gift deed is a powerful tool for transferring property between two persons, especially among family members or close relatives. However, it’s important to understand the legal, financial, and tax implications, especially the stamp duty component, because it is very important to understand the calculation and another related process of stamp duty upon it. Given the variation in state-wide rates and exemptions, always consult a legal expert or property lawyer before executing a gift deed.
By doing it right, you can ensure a smooth and hassle-free property transfer that stands the test of law and time.
