- 18-Apr-2025
- Education Law
When a property is transferred as a gift, stamp duty plays a significant role in the legal and financial aspects of the transfer. In India, stamp duty is a tax that must be paid on the transfer of property ownership, including when a property is gifted. The amount of stamp duty varies from state to state, and certain exemptions may apply, particularly for transfers between close relatives. Understanding the impact of stamp duty is crucial for both the giver and the recipient of the gift.
In India, the transfer of property through a gift must be documented with a gift deed, which is a legal document that records the voluntary transfer of property ownership from the donor (giver) to the recipient. To make the gift deed legally valid, stamp duty must be paid.
Stamp duty is payable based on the value of the property being transferred and is calculated as a percentage of the market value or the value mentioned in the gift deed, whichever is higher. The percentage varies across different states.
Example: If the value of the house being gifted is Rs. 50 lakhs and the applicable stamp duty in the state is 5%, the recipient will need to pay Rs. 2.5 lakhs in stamp duty to complete the transfer.
The stamp duty rate for a gift deed differs from state to state. While some states may charge a standard rate, others may offer discounts or impose higher rates for properties in urban areas or high-value transfers.
Example: In Maharashtra, the stamp duty on property transfers through a gift deed is generally 3% for gifts to close relatives, while in Delhi, the rate may be 4% for such transfers.
Many states provide exemptions or concessions on stamp duty for property gifted to close relatives, such as children, parents, or spouses. This means that in many cases, the recipient will not have to pay the full stamp duty amount, or a reduced rate may apply.
Example: In some states, if a parent gifts a property to their child, the stamp duty rate could be as low as 1% or may be fully exempt, depending on the state's specific provisions.
A relative, according to Indian law, typically includes individuals such as parents, siblings, children, spouses, and other direct family members. If the property is gifted to non-relatives (e.g., friends or distant relatives), full stamp duty may apply.
Stamp duty is typically calculated on the higher of the market value or the value stated in the gift deed. The market value is usually determined by the Circle Rate or Ready Reckoner Rate fixed by the local authorities.
Example: If the market value of the property is Rs. 60 lakhs, but the gift deed states it is worth Rs. 50 lakhs, the stamp duty will be calculated based on the market value (Rs. 60 lakhs) if it is higher than the stated value.
While the giver may not bear the stamp duty cost, the recipient is generally responsible for paying the stamp duty for the transfer of property. The amount can be substantial, especially for high-value properties.
Example: If the gift is a commercial property worth Rs. 1 crore and the stamp duty rate is 4%, the recipient would have to pay Rs. 4 lakhs in stamp duty.
Stamp duty is typically paid before the gift deed is registered with the local sub-registrar office. The payment can be made through various methods such as online payment, demand drafts, or physically at the sub-registrar’s office.
After stamp duty is paid, the gift deed must be registered with the sub-registrar office where the property is located. This is a crucial step for the legal transfer of ownership.
Example: The recipient would need to submit the signed gift deed, along with proof of identity, the payment receipt for stamp duty, and other required documents at the sub-registrar office to register the transfer.
In India, there is no gift tax on property transfers made to relatives, including children. However, the recipient must be aware that capital gains tax may apply if the gifted property is sold in the future.
Without payment of stamp duty, the gift deed will not be legally valid. This may create legal issues if the gift is contested or if the recipient needs to sell the property in the future.
If the stamp duty is not paid within the prescribed time frame, penalties may apply. The penalty amount can be a percentage of the stamp duty due, depending on the state’s rules.
Example: If stamp duty is paid late, the recipient may have to pay a penalty fee in addition to the original stamp duty.
A parent gifts a residential flat worth Rs. 70 lakhs to their child. The applicable stamp duty rate in their state is 4%. The child will need to pay Rs. 2.8 lakhs in stamp duty to transfer ownership legally. Additionally, the gift deed must be registered at the sub-registrar office for the transfer to be officially recorded. If the flat's market value is higher (say, Rs. 75 lakhs), the stamp duty will be calculated based on the higher value (Rs. 75 lakhs), leading to a higher stamp duty cost.
Stamp duty is a significant factor to consider when transferring property as a gift. It is essential to understand the rates and exemptions that apply in your state, as well as the legal requirements for registering the gift deed. While gifting a property to close relatives can often reduce the stamp duty burden, the recipient must still be prepared for the financial obligation associated with stamp duty payment. Failure to pay stamp duty on time may result in penalties, and the transaction may not be legally valid without proper registration and payment.
Answer By Law4u Team
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