Sakina Babwani | ET Bureau Aug 12, 2013, 08.00AM IST | Economic Times – ET Wealth
When it comes to transferring property, a sales deed may not always fit the bill, especially if you want to pass it on to relatives. In such cases, instruments like a gift deed or relinquishment deed can come to your rescue. However, blindly choosing either can lead to problems.
“You must understand the purpose of each document before getting it drafted. Know the benefits as well as drawbacks of each,” says Vaibhav Sankla, director, H&R Block. “These documents are designed to play a specific role in the transfer of property and, hence, it is important to consult a lawyer,” he adds.
This document allows you to gift your assets or transfer ownership without any exchange of money. To gift immovable property, you just have to draft the document on a stamp paper, have it attested by two witnesses and register it. Registering a gift deed with the sub-registrar of assurances is mandatory as per Section 17 of the Registration Act, 1908, failing which the transfer will be invalid. Besides, such a transfer is irrevocable. Once the property is gifted, it belongs to the beneficiary and you cannot reverse the transfer or even ask for monetary compensation.
However, if you want to gift movable property like jewellery, registration is not compulsory. At the same time, a mere entry in an account book is not sufficient to establish a transfer. Apart from physically handing over the property, you need to back it with a gift deed. The process is slightly different if you are gifting company shares. You will have to fill out the share transfer form and submit it to the company or registrar, and the transfer agent of the firm. Once again, get a gift deed drawn and executed to complete the transfer, but the document need not be registered.
Advantages: The biggest benefit is that there is no tax implication if you are gifting property to certain relatives (see box). However, you still have to pay stamp duty, which can vary from 1-8% for immovable property, depending on the state in which the transfer takes place. If you are gifting property to a non-relative, the stamp duty would be higher at 5-11%. You have to pay this duty even in the case of movable property. Expect to shell out 2-8% in case of relatives, and 3-8% for non-relatives. For physical shares, the stamp duty is 0.25%, but if these are in the demat form, you don’t have to pay.
Limitations: Though a gift deed cannot be revoked, it can be challenged in court, coe rcion and fraud being the most common grou nds. So, if you have been tricked into gifting property, you can take the matter to court and have the transfer reversed. It can also be challenged on the grounds that the donor was not of sound mind or a minor. “You can never have a challenge-free gift deed, but consult a lawyer while drafting it so that the chances of it being challenged are minimum,” says Aakanksha Joshi, senior associate, Economic Laws Practice. Also, you cannot gift a property that’s held jointly.
This document is quite different from a gift deed, though the legal implications are the same. You can use this instrument if you want to transfer your rights in a particular property to another co-owner. Such a transfer is also irrevocable even if it is without any exchange of money. As with all documents related to the transfer of immovable property, a relinquishment deed needs to be signed by both parties and registered.
The stamp duty is similar to that for a gift deed. However there is no discount for relatives, nor are there any tax benefits. Also, both stamp duty and tax will be applicable only on the portion of the property that you relinquish, not on its total value. You can also use this deed to transfer movable property without registration, but it is typically used for immovable property.
Advantages: It allows seamless transfer of your share in a jointly-held property. “This document is most commonly used when a person dies without leaving behind a will and all siblings end up inheriting the property,” explains Joshi. Unlike a gift deed, you can draw the relinquishment deed for monetary consideration.
Limitations: There are no tax benefits, for as per the tax laws, the term ‘transfer’ includes relinquishment, not gift. Hence, when you are relinquishing property for monetary consideration, it will result in capital gains for the transferor. “If the consideration is less than the stamp duty value of the property, the difference between the stamp duty and the consideration will be taxed in the hands of the buyer,” says Sankla. If you relinquish it without any consideration, the stamp duty value of the property will be its sales price.