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.

Read More: Property Disputes Among Siblings

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. 

Read More: SC Guidelines For Court Hearings Through Video Conferencing Due To COVID 19

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/-.

Read More: Useful Tips To Transfer A Property

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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TDS rules for resident buyer buying property from NRI seller


A resident Indian buyer has to comply with a particular set of TDS rules when he is buying property from NRI. The rules are prescribed as per the Indian Income Tax Law. 

It is advised to take the assistance of an expert in calculation and filing of TDS return to avoid legal hassles. 

It would be easier to understand the nuances of buying property from NRI if we are aware of the correct information.

Read More: Tax implications on a gifted property

First and foremost you should know:

Who is an NRI seller?

NRI seller of the immovable property for TDS is the one who conforms to the status of NRI as per the Income Tax Law in India. The residential status must be mentioned in the sale deed.

Who is liable to pay TDS?

It is the buyer who pays the TDS. 

How is TDS calculated when buying the property?

TDS is calculated on capital gains. 

Capital Gains – it is income from profits earned by sale of a property in India.

  • Short term Capital Gains: profit from the sale of the property within two years of its purchase.
  • Long term Capital Gains: profit earned from the sale of property held for more than two years.

TDS is deducted at the rate of 20% on long term capital gains and 30% on short term capital gains plus surcharge, health and education cess.

In case there is any doubt about the capital gain income, an application can be filed with the income tax authority to know the correct amount. As a precaution, the buyer can ask the seller to bring a certificate from the authorities showing the ascertained amount of capital gain. The buyer must include the details of the same in the sale deed. The residential status must be mentioned in the sale deed. There is a penalty for the buyer if he does not comply with the TDS rules.

Read More: Tax rules for investment in real estate by non-resident Indians

For any exemption available to NRI seller for payment of tax, he has to bring evidence of the same and show it to the buyer.

The amount of tax deducted and the rate applied must be mentioned in the sale deed.

What is TAN? 

A buyer has to get TAN (tax deduction account number) as he has to deposit tax. The buyer must have his PAN number as well as PAN of the seller also before applying for TAN.

There is a penalty if he TDS is deposited without TAN. In the case of joint purchase, all the buyers must obtain separate TAN.

How to Deposit TDS?

TDS is deducted and deposited by the buyer with the Taxation Department or through an authorized bank. After depositing, the buyer files return by submitting form 27Q and then issues a certificate to the seller.

Read More: Tax on capital gains for non-resident of India

Deposit of sale proceeds?

The buyer must deposit the amount in the NRO/NCR/FCNR account of NRI. 

It is better to execute the sale deed when the NRI is physically present in India. It should be done with a PoA holder in unavoidable circumstances. The buyer is responsible for deducting TDS and depositing the same. He must be careful while buying the property and comply with TDS rules. 

Transfer of ancestral property and registration of transfer deed


Transfer of immovable property results in the conveyance of property rights, i.e. title, rights, interest in the property by one person to another. 

The property can be transferred by the person having rights to do so. Generally, it is the owner of the property or the person authorized to do so. 

Any document showing the ownership of the property/land in the name of a person is a title deed. E.g. in case of sale of a property, sale deed is the title deed.

In the case of ancestral property, the ownership is verified from the record of the land registration department. 

What is the ancestral property?

Ancestral property is the property which has passed on up to four generations, including the owner, without any division. The coparceners (a small unit of lineal descendants of a common ancestor within the undivided Hindu family) have a birthright in the ancestral property.

Read More: Property rights of a wife after husband’s death

Only the Karta of the family (Karta is the head of the Hindu Undivided Family) has the right to alienate the HUF property which may include the ancestral property under certain conditions.

Property inherited from maternal ancestors or obtained by Gift, or Will is not ancestral property.

Whenever a person inherits an ancestral property, it is essential to get it transferred in the name of the beneficiary in revenue records or municipal records.

Modes of transfer and transfer deed:

There are various modes of transfer of immovable property like transfer by sale, gift, lease, and mortgage. The transfer takes place vide instrument called transfer deed. As per the nature of transfer, the deed can be sale deed, lease deed, mortgage deed etc.

Read More: Property rights of the second wife and her children

Transfer of ancestral land:

Ancestral land can also be transferred. The coparceners who have right over the ancestral property can transfer their respective shares or interest in the property. If the ancestral land is divided among the family members or there is a partition of the property, the property ceases to be ancestral. The share which each member gets after partition becomes the self-acquired property.

There can be a transfer of share or interest by coparcener (co-owner) without actual partition of entire ancestral land. In some parts of the land, consent of co-owners, i.e. the consent of other coparceners, is required. There are other areas where the consent of other coparceners is not needed.

A coparcener can also transfer his share to another coparcener. 

However, in any case, the transfer deed must be registered as per Law.

Registration of transfer deed:

The registration of transfer deed can be optional or mandatory as per the Indian Registration Act.

Read More: Property Rights of Women as per Hindu Law

 In some cases, it is mandatory like: 

  • sale of immovable property if the value of the property exceeds Rs 100
  • Lease of immovable property if the lease period is more than 11 months
  • Gift deed

If the registration is compulsory, the transfer is not valid if the deed is not registered. It is always better to get the transfer deed registered. The process of registration helps to:

  • Create evidence of ownership
  • Records the transaction-related to a property for future references

The transfer deed transfers the right or interest in the property to another person called transferee. For a valid transfer, the deed must be registered as per Law. The land registry, i.e. the department for registration records the ownership for the public. Once the document is registered as per Law, it becomes the title deed, i.e. document showing the name of the person holding the title of the property. 

The property rights are mentioned in the record maintained by the land registry department.

Read More: The married daughters’ right in mother’s self-acquired property

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Rules for selling immovable property in India and repatriation of sale proceeds

Rules for selling immovable property in India and repatriation of sale proceeds (1)

Real Estate investment and later selling property acquired in India by NRIs have always been a significant area inviting many queries. RBI governs sale and purchase of property by NRIs under FEMA (Foreign Exchange Management Act), 1999. RBI grants general Permission for property transactions by NRIs in India, and in some cases, specific permission of RBI is required. The rules and regulations have been simplified and made investor friendly

NRIs may want to sell the property as it is difficult to maintain if there is no plan to visit India or rent out the same and burden their family friends for payment of property tax, maintenance charges and other municipal dues

A Canadian Citizen who had inherited a property in India wanted to sell his property here in India and repatriate the sale proceeds. We answered the queries as follows:

Read: Sale of property in India by NRIs

Which property can be sold and to whom

  • Any property can be sold to a resident Indian – residential or commercial whether purchased, inherited or gifted.
  • In case the buyer is NRI – any property except agricultural land, plantation property and farmhouse.

Repatriation – It is a vast topic, but here we are confining ourselves to repatriation of sale proceeds only.

Sale proceeds can be legally and safely remitted through proper banking channels. Asset bought in India can be sold if they are purchased confirming to all the rules and regulations of foreign exchange. Once the property is sold, the next step is to repatriate the funds abroad:

If inherited/gifted -property is sold

  • The sale amount is deposited in NRO account. Repatriation is allowed up to USD One million per financial year. If remittance increases US dollar one million in a financial year, permission of RBI is required.
  • If the property has been inherited from a person residing outside India, special permission of RBI is needed.
  • NRIs can acquire agricultural land in India only through inheritance, and the same can be sold only to a resident Indian.

If the purchased property is sold:

a. The property was purchased while being a resident Indian

  • The sale proceeds are credited to NRO account and remittance from NRO account is allowed up to USD One million in a financial year after payment of tax.
  • The repatriation, in this case, is allowed only if the property is held for 10 years. If not, the sale proceeds are held in NRO account to complete 10 years.

Read: Can you sell your share of an Inherited Property?

b. The property was purchased as NRI

  • If the property was purchased using money resources in India (loan from bank or family friends) – sale proceeds are credited to NRO account. Repatriation limit is the same as in point a. Permission from RBI is required if remittance is more than that.
  • If the property was purchased on loan, repatriation is allowed up to the loan repayment amount made through NRE/FCNR accounts or remittance of foreign currency through banking channels.
  • If the property was purchased using foreign currency funds from NRE /FCNR account, the maximum amount of repatriation could be the foreign currency equivalent of the amount paid for the purchase.

In such case, repatriation of the entire principal amount is done without any restriction subject to the condition of repatriation of two residential properties only — no limit for commercial properties. Capital gains/profits are deposited in NRO account and are repatriated subject to condition of USD one million per financial year.

The repatriation limit applies to one person per financial year.

Read: Property rights of daughters Under Hindu Law in India

Documents required for repatriation of sale proceeds:

  • Certificate from Chartered Accountant – Form 15 CB
  • Certificate from income tax department – Form 15 CA
  • Application in a bank for foreign exchange
  • Proof of inheritance in case of sale of inherited property
  • Document proving sale

It is always advisable to hire a lawyer to ensure proper documentation and smooth repatriation of sale proceeds.

Purchase of Immovable Property and Agricultural Lands by NRIs

Purchase of Immovable Property and Agricultural Lands by NRIs

While immovable property generally refers to a property that is fixed to earth such as a house; an agricultural land usually refers to such a land which is devoted to agriculture, and the controlled and systematic rearing of livestock along with the production of crops, in order to produce food for humans. Thus, it is synonymous with cropland or farmland.

Which properties can an NRI purchase:

A citizen of India resident outside (NRI) can own commercial as well as the residential properties in India, and there are no restrictions on the number of immovable properties that he can purchase.  All the transaction relating to such an immovable property has to be done in Indian rupees (INR) and via the normal banking channels. The funds regulating the transaction have to be maintained in a non-resident account under Foreign Exchange Management Act (FEMA) and the RBI regulations.

However, one cannot purchase any agricultural land/ farm house or plantation land, and such property can only be inherited. In order to purchase such property, he has to take prior permission from Reserve Bank of India. Such a proposal would then be considered by RBI in consultation with the Government of India.

Transfer of Property by an NRI:

An NRI can transfer immovable properties (other than agricultural land) to:

  • Any person who is a citizen of India, but resides outside its territory.
  • Any person of Indian origin, residing outside.
  • Any person residing in India.

Any Agricultural land/ farm house or plantation property that he has acquired in inheritance can only be transferred to Indian citizens who are permanently residing in India.

Tax Implications:

On purchase of immovable property by an NRI, he would be entitled to all tax benefits that a resident of India would be entitled to. NRIs have to pay TDS (Tax Deducted at Source) at the rate of 1% if the property being bought is worth more than Rs. 50 lakh.

In case the property is vacant, the wealth tax would be exempted. But this rule is only applicable to the first property. For subsequent vacant properties, tax at the rate of 1% the value in excess of Rs. 30 lakh will have to be paid.

When the property is being sold, capital gains tax as prescribed under Income Tax Act will have to be paid. Long-term capital gains benefits can be received if the property is held for over 36 months. Capital gains may be taxable in the country the NRI resides if they do not have a DTAA (Double Taxation Avoidance Agreement) with India.