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It is possible to sell gifted property in India. For doing so, it should first be registered under the Transfer of Property Act of 1882 in the receiver’s name and without any conditions. A gift deed and a sale deed hold the same legal relevance in property transfer.
What Is A Gifted Property?
A gifted property is a property that is transferred to another person as a gift, without any monetary consideration.
The person who gifts the property is called the donor and the person who receives it is called a donee.
Things You Should Consider While Selling A Gifted Property In India
- Ensure that the property is registered – The property must be registered in the receiver’s name under the Transfer of Property Act 1882. This act regulates the transfer of property in India. It contains provisions regarding what constitutes a transfer and the conditions attached to it.
- Gift deed – It is essential to have a registered gift deed mentioning the ownership of the property. The gift deed must be properly executed and stamped as it is important for legal validity. A gift deed is a voluntary act of the donor. It can be executed during a lifetime of the donor. It is also a permanent and irrevocable transfer of a property requiring registration as per the Registration Act 1908.
- Obtain legal advice – Make sure you hire a lawyer to understand any implications related to the sale of gifted property along with tax liabilities.
- Obtain valuation – To determine the market value and to help in setting a selling price, it is important to get the property upraised. Valuation is the process of determining the worth of a property or an asset. It provides prospective buyers with an idea of how much they should pay for and to the prospective sellers on how much they should sell for.
- Update property records – Ensure that the property records are updated in the Local Revenue Department reflecting the new ownership.
- Tax implications – Understand the capital gains tax applicability if the property has appreciated in value since it was gifted. A consultation with a tax advisor should be made for details on exemptions and liabilities.
- Documentation – It is a crucial requirement while selling a gifted property. The documents necessary are – Sale deed, Title deed, Gift deed, Encumbrance certificate, Property tax receipts, and Identity proofs of the buyer and the seller.
- Drafting the sale deed – The draft of the sale deed contains details of the parties, sale consideration agreed upon, details of the property in question, method of payments, the amount paid in advance, time limit of consideration payment, handing over of original documents, and possession of the property.
- Handover possession – After the sale deed is registered, hand over possession of the property to the buyer. Update the property records with local authorities.
- Register sale deed – A sale deed must be registered in the presence of both parties. Ensure that the sale deed includes all essential details like the name of the buyer and the seller, description of the property, and sale amount including terms and conditions if any.
How Is The Sale Of Gifted Property Taxed?
Any immovable property which also includes a house received by an individual taxpayer during any financial year without consideration whose stamp duty value exceeds Rs. 50,000 is not taxable if it is received from a relative which includes the father of an individual among others. Hence, there shouldn’t be any tax implications on this kind of gift transaction.
If the gifted property is held for more than 24 months, any of the capital gains due to the sales qualify as ‘long-term capital gains’ (LTCG). Taxation of a rate of 20% along with the subcharges and cess applies to LTCG. The computation of LTCG involves improvements for net sale proceeds and deducting the cost of acquisition. The taxable capital gains may be mitigated because of various exemptions and deductions.
What Should You Check In The Gift Deed Before The Sale Of Gifted Property?
If you are planning to sell your gifted property, then you need to check a few things in the gift deed before proceeding.
- Ensure the gifted property is legally accepted by you & the same is reflected in the gift deed.
- Secondly, make sure to go through the conditions & restrictions provided in the gift deed. A few times gift deed holds the condition that the particular property can not be sold for a specific period of time.
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Key Components Of A Gift Deed
- Details of the Donor and the Donee – A gift deed has the names, identifying information and address of all the parties involved.
- Transferring ownership – The document explicitly states the transfer of ownership from the donor to the donee of the mentioned asset.
- Consideration – A gift deed does not involve any monetary transactions like a sale deed. Mentioning is important that the assets are being transferred by way of a gift and not a sale.
- Acceptance – The donee must accept the gift from the donor. It is when a buyer accepts the terms of a purchase agreement. It also happens when the recipient acknowledges and takes possession of the property.
Purpose Of Gift Deed
- Establishing ownership – It establishes the transfer of property or assets ownership.
- Protects interest – It protects the interest of both the donor and the donee.
- Passes on assets – It allows for the transfer of assets to heirs or beneficiaries.
- Charitable donations – Non-profit and charitable organizations often receive donations through a gift deed.
In conclusion, Under the Transfer of Act 1882, the sale of gifted property is permissible. It becomes the recipient’s rightful property after the property is gifted and legally transferred through a gift deed to the recipient.
As such the recipient has the authority to sell it if they choose to do so. However, it is essential to ensure that all the legal procedures are followed and that any taxes on its sale are paid.
FAQ
| How is the capital gains calculated for a gifted property?
Capital gains tax is calculated from the difference between the sale price and acquisition. The cost of acquisition is the value at which the property was gifted. |
| How is the property market value determined?
The market value is typically determined based on the property’s value while the time of gifting as per government valuation. |
| What is the period of holding of gifted property?
The holding period starts from the time of share purchase from the person who gifted you the shares. Thus, if you sold the shares within 12 months of the purchase by the donor, you will have to pay short-term capital gains. |
| Can I disapprove a gifted property?
The donor and the donee have to mutually agree to halt the transfer of the gifted property. |
