Capital gain - gifted property

This query is : Resolved

Suraj (Querist)
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26 November 2013
Mr. A gifted a property acquired by him in 1990 for Rs. 10 lacs to his son Mr. B in January 2013. Mr. B sold the property in March 2013. So,

1. What shall be the indexed cost for Mr. B?

2. Period of holding in the hands of Mr. B?

3. Nature of taxation – Whether the transaction will be Short Term Capital Gain or Long Term Capital Gain in hands of Mr. B?

Please provide the relevant sections for reference.

tulsi kumar soni

tulsi kumar soni (Expert)
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26 November 2013 Gift deed

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, Also, you cannot gift a property that's held jointly.