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New Year cheer: You don’t have to pay tax while gifting house to your child; here is how

While you or your child do not have to pay any tax on transfer of property, you have to pay stamp duty and register the gift deed.

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Since a house property has a high value, you must validate the transfer by registering for a gift deed.

From a room of their own to a home with their name on the door—as a parent, you may consider gifting your child a home. However, transferring immovable property has tax implications that you must consider. Whether you wish to gift your child with a new home for her 25th birthday or as a wedding gift, buying this asset has other ramifications as well. So, before you gift your child a home to help them build their asset portfolio, keep these implications in mind. This way you’ll be able to ensure that they’re not caught up in a whirlwind of taxes.

What do gift tax guidelines stipulate?

Gifts were not taxed until October 1, 2004. Here gifts include money, an item or transfer of a movable or immovable property, done voluntarily without consideration. As such, transfer of a house property can qualify as a taxable gift in the following situations. One, if you transfer the house voluntarily and its stamp value exceeds Rs 50,000. Two, if you transfer the house for an inadequate consideration and the difference between the stamp value and the consideration that you receive is more than Rs 50,000, that amount is eligible for taxation. Three, if you transfer the house for an adequate consideration and the difference between the fair market value of the property and the consideration is greater than Rs 50,000, that amount is eligible for taxation. Also, as per the 2017–18 tax return forms, you have to fill a separate form to disclose gifts.

What tax consequences to bear?

However, neither you nor your children will have to bear any tax consequences on the transfer of a house property as it happens between relatives. However, if your children sell the house property or rent it out, the income earned is taxable in their hands. So any income that they receive by way of renting or selling the property, will be added to their income and taxed accordingly.

Since a house property has a high value, you must validate the transfer by registering for a gift deed. Additionally, you will have to pay the stamp duty for the transfer. If you fail to do the above, the transfer will render to be void. With this brief guide on what to keep in mind before gifting a house to your children, you can keep additional expenses to a minimum.

The writer is CEO, BankBazaar.com

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