Usually, the transfer of property involves a sales agreement whereby the owner foregoes the legal rights to the property to another for monetary consideration. And if there are resultant capital gains in the process, the transferor pays taxes on it.
However, while bequeathing property to loved ones, one would want to make it tax-effective and less cumbersome. Here are some common ways to do that.
If you want to gift the property to any blood relatives, a gift deed is cost-effective. Since there is no financial consideration involved, there are no taxes.
The gift deed must be compulsorily registered under the Registration Act to be valid and legally effective. Once it is executed, it comes into effect immediately and cannot be revoked or cancelled later. At best, one can only challenge it in a court of law on the grounds of fraud or coercion.
Stamp duty for gift deeds differs from state to state and can range between 2-7% of the property value.
However, for gifting of residential properties, the rates are usually lower. For instance, in Maharashtra, stamp duty for a gift deed is 3%. However, this stamp duty is only Rs 200 for residential property passed on to family members. So, check the applicable rates for your property.
Writing a will is one of the best options to avoid potential family disputes relating to the inheritance of property rights.
It is a legal declaration of a person intending to distribute his properties and personal belongings among people after his death. It can be changed or withdrawn anytime during one’s lifetime.
Again, there are absolutely no tax implications on the beneficiary. A sound will delineate the testator’s intention by mentioning the property/properties. The will also outlines how properties will be distributed among the beneficiaries.
Usually, accountants, lawyers or family members of high integrity are appointed as an executor to administer the estate and distribution process.
While you can register a will with the sub-registrar of the concerned jurisdiction, it is not compulsory. While it doesn’t cost much to register a will, there are some distinct advantages of doing so.
Firstly, in case of doubts regarding the will’s authenticity, one can approach the registrar. Also, you can seek a copy of the will if the will is misplaced. A valid will may be required to be probated by a court. After this, the court issues an order for the distribution of property as per the will.
Family trusts become a suitable choice when the family structure and the assets/properties involved are complex.
One of its main advantages is protecting your property by insulating it from any family disputes.
Here, the assets are not directly transferred to the beneficiary but to a Trust. A legally appointed trustee manages this trust. Then, based on the purpose of the trust deed and its content, the trustee goes about distributing property and income.
For instance, a family might have a member with a disability and require more considerable monetary support. Furthermore, it can specify at what age an individual would succeed to a property – say on turning 18 years. HNIs usually find private trusts most beneficial. Private trusts also help those with significant property holdings.
If a person dies without a will, his property right will devolve upon the legal heirs.
If one of the legal heirs wants to give up her legal rights in favour of others (his mother, son, daughter, brother, sister etc.), it can be done through a relinquishment deed.
Relinquishment is also done by a co-owner in favour of other owners.
For instance, a brother might relinquish his share in the ancestral property favouring his two sisters (co-owners) after becoming legal heirs.
However, relinquishment cannot be done in favour of a third party. The deed also needs to be registered compulsorily to be legally binding. A relinquishment may or may not have an element of consideration.
Since relinquishment is a transfer and not a gift, taxes are applicable. However, it would be effective only for the portion of the property value that has been relinquished.
The relinquishment deed is irrevocable and can only be challenged in a court of law on fraud or coercion grounds.
Gift, will, and relinquishment deeds are the most common estate planning instruments. While a gift deed enables bequeathing during one’s lifetime, it will do so after one’s death by avoiding potential conflicts.