Transfer of property by way of gift
If you wish to transfer a property, so as to make the donee enjoy the property immediately, this can be done by way of a gift. You can gift a self-acquired property to anyone, as long as you are competent to contract, as per the provisions of the Indian Contract Act. Any person who is of sound mind and not a minor, can enter into any contract, as long as he is not an undischarged insolvent. An immovable property can be gifted, by executing a gift deed. You need to pay stamp duty on the market value of the property, as on the date of execution of the gift deed. In case the gift is to be made in favour of certain close relatives, some states like Maharashtra have provisions for concession in payment of stamp duty.
A gift may be made in favour of any person who is living at the time of making the gift. The gift also has to be accepted by the donee, or anyone else on his behalf, during the lifetime of the person making the gift. As per the provisions of the Transfer of Property Act, every transaction, which involves transfer of an immovable property, over the value of one hundred rupees, needs to be registered with the office of the registrar of the area. Moreover, in case the gift is intended to be made in favour of a person who is not your relative as per the definition of the provisions of Section 56(2) and the value of the property which is the subject matter of the gift exceeds Rs 50,000, as on the date of the gift, although you do not have any tax implications for such gifts, the recipient of such property has to include the market value of the property in his total income in the year of the receipt and has to pay appropriate tax on such gifts.
Transfer of property through a will
A transfer of any property can also be made by way of execution of a will but the vesting of the property will take effect, after the death of the person executing the will. As per the prevalent laws, a will is neither required to be stamped, nor is it required to be registered. So, a will is the cheapest mode of transferring your property, to the persons whom you wish to.
Although registration of a will is not mandatory, it is always advisable to register the will, to minimise any litigation with respect to succession of your properties. There is no estate duty payable by the person who succeeds to the asset of the deceased. Moreover, any asset inherited, either under a will or through the laws of succession, is exempt from income tax laws, as well as Section 56(2), which treats certain transfer of assets without adequate consideration or with an inadequate consideration, as income of the recipient.
After one’s death the assets can be inherited by people in two ways. The assets owned by the person at the time of his death, will pass on to his relatives as per the provisions of succession applicable to the deceased, in case no will is executed. In case a will is executed by the deceased, the assets will be inherited by the people named in the will. In case all the assets are not covered under the will, the assets that are not covered, will be inherited by the legal heirs of the deceased as per the succession law.
Under the law of succession applicable to Hindus, there are no restrictions on a person in bequeathing his assets to anyone to the exclusion of his legal heirs. Under the Muslim laws, a Muslim cannot bequeath more than one-third of his assets under a will.
Gift versus will: Which option should a property owner choose?
The answer to this question is difficult, as circumstances for every person are different. However, one can consider certain points, before deciding on a specific course of action. If your wish is only to ensure that the assets owned by you pass on to persons of your choice, only after death and you want to enjoy and have control over those assets during your lifetime, then, bequeathing your assets through a will is advisable. A will is also advisable when you want to ensure a smooth succession of your assets after your death and where your purpose is to let your nominees inherit your properties.
However, if you want to help someone who is in need of immediate help, it can only be achieved through the execution of a gift. Transfer of properties through a gift, should be resorted to only when it is needed under specific circumstances. If you transfer all or a substantial portion of your assets to your legal heirs, it may leave you in a difficult position in your old age.
Likewise, it is not advisable to transfer your properties just for the sake of tax planning, as it would be unwise to lose control of your assets, just to save some money in taxes. However, in case you wish to transfer a part of your estate during your lifetime, to avoid any litigation around the properties, then, resorting to a gift is advisable.
(The author is a tax and investment expert, with 35 years’ experience)