Tax for NRIs on gifts of money and property from resident Indians received through gift deeds

Tax for NRIs on gifts of money and property from resident Indians received through gift deeds

Gifts in India are taxable under the Income Tax Act. Gift can be in cash or kind (moveable or immoveable property and other assets specified under the Act). A resident Indian can make a gift to an NRI through a gift deed, but there is a claim on gifts received by NRI.

NRIs are taxed for income that arises in India or is received or accrued in India or deemed to have arisen, received, or accrued in India.

A gift to an NRI by the way of gift deed from a relative is not income and thus not chargeable to tax. Gifts in excess of Rs 50,000/- are subject to tax if gifted by a non- relative. There are certain other exemptions. No tax is payable if a gift is given in contemplation of the recipient’s marriage, death of the donor, or under a Will or inheritance.

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Gift by Remittance

In case of a gift by remittance from a resident Indian, it was not taxed as the transaction is completed in a foreign country bank account where the NRI receives the money. This income is neither received in India nor accrued in India, therefore, not liable for taxation. The gift of money made to NRI was not charged for tax. There is no claim on such gifts received by NRI.

Under the scheme called Liberalized Remittance Scheme (LRS), a resident Indian can remit amount up to $250,000 a year for various purposes like gift, donation, maintenance of close relatives, etc.

Loopholes in Gift Deed

A resident can remit to an NRI even if he is not a relative. And there is no claim on such gifts received by an NRI through gift deed. Taking advantage of the same, many rich people in India used to transfer by way of gift a considerable amount of money to NRIs and avoid tax on their taxable income.

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Now there is an amendment in the rule. It says that the sum of money received by a person outside India from a resident, without any consideration, is deemed to accrue or arise in India. Thus, the gift of money received by a person outside India by way of remittance from a resident would be taxable in India. But if the donor is a relative, remittance is not taxable i.e., no claim on this gift received by NRI if he is a relative of donor.

The amendment is only for the gift of money and not property. Accordingly, if the property situated in India is transferred to an NRI by way of gift through a gift deed, tax is payable by NRI if the value of such a gift is more than Rs 50,000/-.

Gift Taxation Rules

A person outside India means a non-resident or a foreign company. All the money transfers without any consideration on or after July 5, 2019, will be treated as taxable from FY 2019-20.

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Thus for Gift taxation purposes, the place where the gift originated becomes significant rather than the destination.

An NRI has to file his income tax return in India and disclose his income from all the Gifts received. NRIs are now included as income tax assesses and liable for a claim on the gifts received by them through a gift deed.

However, if India has signed a double taxation avoidance treaty with the country of the recipient, the relevant clause will apply. In such a case, the tax may not be payable.

As a top lawfirm in India, we offers a wide array of services to individuals as well as organizations in matters of taxation in India. All the tax issues faced by NRIs are handled by our premier legal management firm.

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Transfer by Gift deed is not taxable

Transfer by Gift deed is not taxable

Gifts transactions are not taxable in the hands of the donor. For a donee, the gift deed transfer is taxable, but there are exceptions. 

Gifts are prevalent among family members or close relatives. It is one way of expressing love and affection. People also make gifts to save taxes as some of the Gift transactions are fully exempted from taxation.

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A person may gift any of the following:

A person may be an individual, HUF or an artificial juridical person like a company/firm. 

In India, we had a Gift Tax Act under which tax was levied on the gift. The donor had to pay the tax. But the said legislation was abolished. Now a provision has been made in the Indian Income Tax Act 1961, for taxing the gift transactions. The recipient of the gift has to pay tax. 

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The gift transaction is tax-free under certain circumstances: 

Gift of Cash:

If the aggregate value of the cash received in gift exceeds Rs 50,000 in a financial year, the recipient has to pay the tax on the amount received. The said amount is counted as his income under the head Income from other sources.

Read More: Tax for NRIs on gifts of money and property

Gift of property:

  • The gift deed of immovable property has to be registered. The stamp duty is paid at the time of registration based on the market value of the property. The stamp duty payable differs from state to state.
  • If the property is received as a gift without consideration, the recipient pays the tax if the stamp duty value of the property exceeds Rs 50,000/-.
  • If the property is received without adequate consideration, the recipient pays the tax if the stamp duty value exceeds consideration amount by Rs 50,000/-. 
  • In the case of moveable property like shares, jewellery, etc., the recipient pays the tax if the fair market value of the property exceeds Rs 50,000/-.

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Some gifts are tax-free:

  • Any amount of gift if received from the relatives as defined in the Income Tax Act. A relative is specified in the Act and can be the spouse, sibling, sibling of the spouse, sibling of either parent, etc.
  • For NRIs and PIOs, the rules of FEMA will also apply. The definition of relatives is narrower under FEMA. For NRIs as a recipient, rules of remittance have to be kept in mind. The resident Indian who wants to gift an amount to an NRI, the said amount cannot exceed the permissible limits of remittance. 
  • Gift received on the occasion of marriage.
  • Gift received under Will or inheritance
  • Gift on the contemplation of death of the donor
  • Gifts received from any fund, foundation, medical institution, educational institution or university, or any charitable or religious trust. Gifts received from any person by the said institutions are also exempted. Such foundation, institution etc. must be registered under the Income Tax Act.

A person can use provisions relating to gifts for tax planning. These are certainly not meant for evading taxes. 

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What is a Sale Deed? Legal Importance and Registration Process

What is a Sale Deed Legal Importance and Registration Process

A sale deed is one of the significant documents in property transactions

What is a sale deed?

A sale deed is a legal document that describes the sale of a property between the parties  (buyer and seller). It is proof of ownership.  It transfers the rights in the property from the seller (transferor) to the buyer (transferee).

Following rights are transferred to the buyer:

  • Right to sell
  • Right to use
  • Right to lease/mortgage

It is essentially a contract and therefore, all the legal requirements of formation of a contract must be fulfilled.

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Legal Importance: Registered Sale deed is a legally binding document.

Proof of ownership:

Once the process of executing the sale deed is completed, the ownership in the property gets transferred to the buyer. The buyer gets absolute right over the property, and he gets the title of ownership.

Details of the parties and the property – help the investor and the parties

Sale deed contains the following elements:

  • Name, father’s name/husband’s name and address of the parties
  • Address of the property, area of the property –full description
  • Payment of sale consideration-mode and time
  • Delivery of Possession
  • Encumbrances on the property –loan, mortgage etc.
  • Compliance of Statutory requirements
  • Statutory payments like utility charges, property tax etc.
  • Clause of Penalty or compensation in case of default
  • Date of execution of deed with registered deed number, serial number, book number, page number etc.

This information is helpful –

  • It avoids ambiguity as the parties are clear about their obligations and rights
  • It guides an investor before finalizing his decision to invest in the property in case of resale.

 Resale –

A sale deed facilitates the resale of the property. It is a primary document conferring the title on the buyer. This title can be transferred by him further based on the deed.

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Process of Registration:

As per the Registration Act 1908, the sale deed needs to be registered compulsorily.

  • The deed is drafted and typed on a non-judicial stamp paper.
  • The buyer has to purchase the stamp paper. Value of the stamp paper depends upon following:
  1. Value of the property –  Sale consideration and Value of the property as per circle rate is compared. Amount of stamp duty is based on higher of the two.
  2. Stamp duty rate applicable is the rate prevalent in the State where the property is located.
  • The sale deed has to be signed by both the parties on every page. The attestation by two witnesses is also required to complete the formation of the deed.

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Registration: – The sale deed is registered at the office of the sub-registrar having jurisdiction over the location of the property.

  • The parties seek an appointment with the Sub Registrar’s office. There is provision for online appointment also.
  • The parties need to be present physically at the office of the sub-registrar on the date of appointment. The seller presents the original documents. The Sub Registrar verifies the same.
  • The parties can also mark presence through the power of attorney holder. 
  • The witnesses to the sale deed are also present.
  • The photographs of the seller and the buyer, their thumb prints and signatures are put on the sale deed.
  • All the parties must possess the ID proofs.
  • The buyer pays registration fees
  • Registered sale deed can be collected at the time given.

In few states, property registration is permitted online also. The parties appear before the authority for final signatures and registration of the document.

Settlement deed between brother and sister residing abroad

Settlement deed between brother and sister residing abroad

Settlement deed is a legal document where parties to the deed settle their differences/disputes. The disputes may be related to court cases, property division, payments etc. A settlement deed between brother and sister living abroad may refer to any of these.

Generally, a settlement deed between brother and sister is a family settlement deed, and most often it is related to the division of property. Settlement deed is a legally enforceable document.

Requirements of Settlement deed

Settlement deed is essentially an agreement.

  • Like any agreement, settlement deed has to be based on mutual consent of all the parties, and such consent should be free from coercion, fraud or misrepresentation.
  • Settlement can be oral or written
  • If in writing, it must be signed by all the parties
  • Attestation by two witnesses

All the brothers and sisters must sign the settlement deed if it relates to the division of family property in which all have a claim. If any of the brother or sister is excluded, the deed is liable to be cancelled. Settlement deed once executed is binding between the parties to it.

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Registration

A family arrangement can be oral or in writing. If it is oral, it does not require any registration, but if it is in writing, then the terms of the deed decide whether it is to be registered or not.

A family settlement deed between brother and sister for distribution of property must be in writing. In case of settlement deed for disposition of property, the property can be:

  • Moveable – jewellery, shares etc
  • Immoveable
  • Cash in bank accounts

If the deed purports to assign an immovable property, the settlement deed must be mandatorily registered. The stamp duty is payable as per the value of the property.

If it is compulsory to register the document and the same is not registered, it carries no evidentiary value in the court. It may act as an estoppel against the family member who has signed the document and has gained out of it. However, if it is not mandatory to register a document and it is not registered, it can be used in evidence.

Payment of stamp duty and registration can be done through an agent (power of attorney holder for the s purpose) if the parties are NRIs and are not present in India.

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Can the settlement deed be executed abroad?

The settlement deed between brothers and sisters residing abroad can be executed in the country where they reside. If the settlement deed relates to property division and has been executed abroad, the stamp duty is payable in India and registration, if mandatory, is done in Sub Registrar’s office where the property is located.

Otherwise also, for any document executed abroad and to be used in India, stamp duty is paid in India at the office of the Sub Registrar, within three months after it is first received in India. The concerned officer will authenticate the said document. 

Any signed document should be presented for registration within four months of its execution. If the document is executed abroad, the time of four months begins from the date it is first received in India.

Grounds for challenging Settlement deed

Some grounds can be

  • Coercion
  • Fraud
  • Misrepresentation
  • Improper execution

As settlement deed can be cancelled if the parties mutually agree to do so by executing a cancellation deed. Otherwise, a suit can be filed challenging the same on any of the grounds available for the same.

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It is always advisable to seek legal advice for the preparation of settlement deed and completing other legal formalities. A settlement deed is good alternative to litigation to settle disputes.

CAN A GIFT DEED BE CHALLENGED IN INDIA

CAN A GIFT DEED BE CHALLENGED IN INDIA

Yes. A Gift deed being an instrument for transferring the rights in the property can be challenged in India.

Gift:                A gift is a gratuitous transfer of property by a donor to a donee voluntarily.

Gift Deed:     A legal document describing the transfer of property. A gift deed is an agreement between the two parties (donor and donee) for transfer of right in the property.

Essentials to make a gift valid:

  • Property: The property to be gifted can be moveable or immovable. It must be an existing property. Future property cannot be transferred
  • Acceptance of gift: The gift has to be accepted by the donee or on his behalf. If the gift is not accepted during the lifetime of the donor, it is invalid. If the donee dies without accepting the gift, it becomes void.
  • Parties must be competent to contract: Donor has to be a person capable of making a contract.  A minor cannot be a donor. However, a minor can be a donee. In such a case, the gift has to be accepted by a guardian on his behalf.
  • Consideration:  There is no consideration in gift. There can be a conditional gift such that the condition is not based on donor’s will or pleasure. The conditional gifts are incomplete until conditions are complied with. 
  • Voluntarily: Gift has to be made with free consent. Free consent implies the absence of :
  • Fraud
  • Coercion
  • Misrepresentation
  • Undue influence
  • Registration: A gift deed made for transferring immovable property has to be registered compulsorily as per The Registration Act, 1908.  The gift deed has to be signed by the parties and attested by two witnesses.

When we gift any moveable property, gift deed is not mandatory. The gift deed even if made, may or may not be registered but delivery and acceptance is a must.

Grounds for challenging the Gift Deed:

A gift deed can be challenged if any of the above mentioned legal requirements for making a gift transaction valid have not been complied with, like:

  • Consent was not free.
  • Gift deed not executed and registered as per legal provisions
  • Parties not competent to contract
  • Consideration is present.
  • Acceptance not made
  • If the gift is conditional and the condition is not fulfilled, gift deed can be revoked.

Revocation of gift deed:

  • Gift deed can be revoked by the donor for any legally valid reason as available for rescinding the contract.
  • Revocation by agreement – Donor and donee may agree at the time of making the gift that the gift can be revoked on the happening of an event which is not dependent on the will of the donor. The condition for revoking the gift should be made clear to the donee at the time of executing the gift deed. The unilateral revocation of the gift is not possible.
  • If the gift is incomplete and the title remains with the donor, the gift deed can be cancelled by the donor.

When to file suit for cancellation of gift deed:

A civil suit for cancellation of a gift deed can be filed within three years of coming to the knowledge of the fact that there exists a ground to challenge the gift deed.

A gift deed can also be cancelled by executing a cancellation deed if both parties agree.