There can be many situations when you wish to transfer or give away your ownership in a property. As a parent you would like to gift the property to your children so that you can see them enjoying it in your lifetime or it can be a gift to them on the occasion of their marriage. At times you relinquish your right in a property when there is a family settlement. Many other situations like these involve transferring property to the other person.
But transferring an immovable property does not take place verbally and there are many tax implications which can arise.
Property is not a movable asset and so you need to go through proper legal procedures and pay the relevant duties/taxes when transferring it. In fact there are wide tax implications when you transfer your immovable property. But there are exemptions available in certain modes especially when the transfer is between the blood relations.
Here I discuss about three ways in which you can transfer your property to another individual :
A relinquishment is basically giving up ones right in the property, which might be inherited or parental, in favor of another legal heir. The relinquishment itself means surrendering or releasing your right in the property to another owner in the same property. In most families this is being done especially on death of the one owner in the property.
Since it’s an immovable asset a proper relinquishment deed gets registered and the stamp duty is payable as per state laws. This relinquishment can be without consideration or with consideration. One important aspect to be noted here is that the relinquishment deed is signed only among legal heirs and so it cannot be executed to another person who is not a legal heir. This means that it can be a family arrangement also where one legal heir surrenders his share in the property for monetary consideration.
The other mode of transfer of property is selling it outrightly. This is the most widely used means when we are looking for monetary gains from our property. The transfer deed as we call it needs to be compulsorily registered and is surely for monetary consideration. Once the property gets registered then the ownership gets transferred to the new owner. Here too the stamp duty as per the state laws is payable.
A gift deed is widely used when you wish to gift the property to either your blood relative or your well wisher. Being an immovable property gifting can only be done through a registered gift deed. Although it is a gift, the stamp duty is still payable as the transaction can take place only through a registered deed. The stamp duty on gift deed may or may not be equal to the general stamp duty you pay on selling the property. It may be lower in some of the states but is a state discretion.
Which Option To Choose?
All these three options have their benefits and limitations which you have to address while making a decision-
Relinquishing your share in a property can be done only in a joint ownership. This is mainly utilized when you wish to transfer your rights to the other family members who are co-owners in the property. A relinquishment cannot be done to a person not having any interest in that property. If it’s so then it will be treated as a sale of the asset. Generally relinquishing your right enhances the ownership of the other co-owners. So if there are 3 co-owners in the property and one of them relinquish his/her right then other two co-owners will have equal rights in the property post the transfer. This mode is highly used in family settlements where the property is co-owned by many legal heirs and one or few of them wish to release the right in favor of others for or without any consideration.
The relinquishment of property results in capital gains taxation and on the basis of time horizon of holding the asset gains are derived. One need to take the help of a good tax professional to find out the tax liability.
Sale Of The Property
This is precisely the selling of the property to any other person. The person buying the property is not necessary to have an interest in the property or is not required to have any kind of relation with you. The sale deed as we call it is signed and registered in the sub registrar office by paying the required stamp duty as per the state laws.
The selling of property results in long term and short term capital gains tax liability as per the state of holding of the property. This tax gets payable by the seller of the property and there are provisions in income tax to save the long term capital gains tax which he/she can avail. Also the tax implications are different when you have an under construction property and when you receive the possession of it. So one should avail the help of a tax expert to know ones tax liability and for availing the right benefits for tax exemptions.
One of the other provisions of transferring your property is gifting. This provisions is highly beneficial within blood relatives considering there is gift tax exemption. So when parents want to gift any property to their children or within brother or sisters then gifting provisions can be used effectively. Since it’s an immovable property the gifting need to be done through a registered gift deed.
There is no tax on the person accepting the property as a gift if it happens within the blood relations. The Income tax has clearly specified certain relations where gifting of an immovable property is tax exempted. The capital gains does not arise since the asset is not sold. Even then there is a stamp duty payable while gifting since the property needs to get registered. The rate of this duty may vary between the states. However, any income from the gifted asset may fall under the clubbing of income provision under certain circumstances like a minor child, housewife etc. and so you need to asses your situation in detail before availing benefit here.
What mode you use for the transfer of your property is a decision which is based on your circumstances. Within blood relations gifting can be a viable means of tax planning for such transactions. However, the tax provisions need to be understood in detail for any of the above mode so that you or the other party do not face any tax surprises. Its advisable that you take assistance of a good tax expert when you are dealing with transfer of immovable property.
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