How to Calculate Stamp Duty for Gift Deed?

WHAT IS A GIFT DEED?

A gift deed is a legal contract between the transferor and transferee which does not involve monetary consideration but it is made out of love and affection for the other party.[1] It is a legal document that transfers property from one person to another as a gift. As per section 122 of  Transfer of property act a gift is defined as, “The transfer of certain existing moveable or immoveable property made voluntarily and without consideration by one person called the ‘donor’, to another person called the ‘donee’ and accepted by or on behalf of the donee.”[2] There can be two types of gift deed which can be either be inter vivos or testamentary. A gift that is inter vivos is a gratuitous transfer of ownership of a property between two living persons and comes under section 5 of, Transfer of property act, 1882. On the other hand a gift which is testamentary is a will which is transferred as per law and does not come under the scope of the transfer of property act.

ESSENTIALS OF A GIFT DEED

There are 6 essentials of a gift deed.[3]

(1) Transfer of ownership:

The simple rule which applies here is that there should be a complete transfer of rights of property from donor to the donee. In certain cases conditional gifts can also be made but he condition should be in coherence with the provision under section 10-34 of the Transfer of property act.

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(2) The ownership should always be related to property in existence:

A gift can be made of existing movable or immovable property and not of a future property. A person can also gift share which he has obtained after a partition in a joint family.

(3) No consideration involved:

The word “consideration” here only and only refers to monetary consideration and does not talk about love and affection. If a condition arises where the property is grossly undervalued and the person obtains a nominal amount as consideration then in that condition also the property would not qualify as a gift but would be part of sale. In a nutshell even a smallest amount of money involved as consideration would destroy the nature of gift. There are various occasions when the gifts are made to obtain spiritual satisfaction or many terms the person giving the gift expects that the person to whom he is giving the gift would take care of him during the old age, all these things do not qualify as consideration.[4]

(4) Free consent:

There should be voluntary transfer of ownership of property, the consent of the donor should be free and should not be obtained by undue influence, fraud or by force. Undue influence cannot just be proved on the basis of the relationship between the donor and donee, it should also be proved that the transaction is unconscionable.

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(5) Capacity of donor:

The person giving away the property as gift should have a capacity to contract. He should have attained the age of 18 years of age. He should not be of unsound mind. The person should not be disqualified under in any other way. Therefore a minor can transfer his property to someone else as a gift.

(6) Acceptance of gift:

The done shall accept the gift himself. In case of a deity a minor can give a valid acceptance, or his parents, or his guardian. For example if a guardian gives acceptance to a certain gift  on behalf of the minor , then the minor  on attaining the age of 18 years has the power to either accept the gift  or reject it. Suppose a gift is made to two persons but only one of them has the capability to take it then it has been observed that the former one will take whole of the gift.[5] Another very important condition is that the acceptance should be given during the lifetime o the donor when he has the capacity to give.

HOW TO CALCULATE STAMP DUTY ON GIFT DEED?

A stamp duty is a direct tax that is levied by the state government. A physical stamp is attached to the legal document of the transfer of property in order to validate the transfer and denote that the tax has been paid.[6] Stamp duty is payable under section 3 of the Indian Stamp Act, 1899. When a property is gifted to a person there is a series of formalities and a procedure that needs to be completed. A person before transferring the property should be aware of all the legal implications. If you don’t complete all the legal formalities, then the gift deed can become invalid. One such legal formality is the stamp duty which needs to be followed while transferring a gift deed. Stamp duty is necessary for proving the ownership of the property in the court of law.

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Stamp duty varies from state to state. However, there are certain factors that are considered while determining the stamp duty tax. Location pays a major role in determining the stamp duty rate which is why the duty rate differs from place to place. A property located in rural area would have less stamp duty as compared to a property located in a municipal area. Stamp duty rates are calculated based on the total market value of the property. Due to this reason the age of the building comes into play. An old building usually has less stamp duty as compared to a new building and the reason behind this that the value of the building depreciates.

Another factor that plays a major role in calculating stamp duty about which many people are not aware of is the age of the owner. The state government has subsidized the rates for senior citizens because they can pay less stamp duty. In the same way women also get a concession in paying the stamp duty tax. Another very important factor in determining the stamp duty rate is the purpose behind the transfer of the property. As compared to a residential building a commercial building needs to pay more stamp duty as it would require more security, larger floor space, etc.

[1] https://economictimes.indiatimes.com

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[2] http://docs.manupatra.in

[3] Section 122, Transfer of Property Act, 1882

[4] https://definitions.uslegal.com/

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[5] Nandi Singh v. Sita Ram, (89) 16 Cal. 677; 16 Ind. App. 44 (P.C.).

[6] https://www.jstor.org

This Article Written by Alok Dubey, Student of Symbiosis Law School, Pune

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Also Read: Can A Person Be Liable For Theft of His Own Property?

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