TAXATION OF IMMOVABLE PROPERTY GIFTS

                                                                                             

The act of gifting has been a common way of transferring property. However, almost ten years ago, it came under the purview of The Gift Tax Act in the Income Tax Act, 1961 under section 56. Although the idea of tax attached to a gift, which by definition, is something given freely, is not greeted with enthusiasm, the larger purpose of the Act was to prevent tax evasion. From April 1, 2004, any sum of money in excess of certain limits received by an individual or Hindu Undivided Family (HUF), is taxable under the provisions of the Indian Income Tax Act, 1961. This income is taxed, as 'income from other sources'. The Act underwent several changes since it was first introduced in 2004. The key difference between the old and new gift tax is that now, you are taxed whilst receiving a gift and not whilst gifting, as was the case in the earlier act. The latest amendment to the Act (October 2009), says that if an individual or HUF receives any immovable property (in the nature of land or building) as a gift, he would be liable to pay tax on the 'stamp duty value' of the property, provided the stamp duty value of the property was more than Rs 50,000. This implied that gifting of immovable property was taxable only if it was received free of cost. Thus, if the receiver were to pay any amount to purchase this property, even Rs 1, technically speaking, there could be no tax on the gift.
   
For illustration purpose, look at the example of the gift tax implication for a property with a stamp duty value of Rs 7,50,000 received by an individual.
   
It is important to note that the limit of Rs 50,000 is to be considered for each property, individually. In the above example, if you were to receive two properties having the stamp duty value of Rs 7,50,000, each for a price of Rs 7,20,000 each, there would be no tax, even though you paid Rs 60,000 less than the total stamp duty value. This is because, for each property, the discount is of only Rs 30,000.
   
A further amendment to the Act that will come into effect from April 1, 2014, is that an individual/HUF receiving immovable property (land or building), would be required to pay tax, if the price paid by him for the property is less than the stamp
duty value of the property, by more than Rs 50,000. Firstly, 'immovable property' includes land or buildings. Secondly, 'stamp duty value' is the value adopted or as may be adopted by the Stamp Duty Valuation Authority for stamp duty purposes. For Mumbai, these rates could be obtained from the stamp duty ready reckoner. Stamp duty value on the date of signing the agreement is to be considered.
   
Since April 2004, there have been exceptions to taxability of gifts (including immovable property) under section 56. The following gifts are not taxed:
   
Gifts received from relatives - spouse,
parents, children, siblings, in-laws and any other lineal ascendants/descendants of self/spouse and spouse of such lineal ascendants/descendants.
   
Gifts received on the occasion of the receiver's marriage.
   
Gifts received under a will or as an inheritance.
   
The definition of 'relatives' must be considered. The brothers and sisters of the individual, along with all lineal ascendants and descendants, are covered which ensures that the immediate family members would be considered as relatives. Further coverage includes the brothers and sisters of the parents of the individual. The
spouse of the individual, along with all his or her lineal ascendants and descendants, are also covered. Once the tax has been paid on the 'gifted' property, the amount to be considered as the cost of such property while calculating Capital Gain on sale is specified under Section 49(4) of Act. The cost of such immovable property shall be the stamp duty value of the property which was considered to arrive at the taxable value of the gift received as above.
 

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ALTHOUGH THE IDEA OF TAX ATTACHED TO A GIFT, WHICH BY DEFINITION, IS SOMETHING GIVEN FREELY, IS NOT GREETED WITH ENTHUSIASM, THE LARGER PURPOSE OF THE ACT WAS TO PREVENT TAX EVASION.


Source : Times of India
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