What is the Stamp Duty and Tax on the Gift Deed of the Property?

Gifting is a method through which a person voluntarily transfers the rights of an asset to someone else. Even though gifting of a property does not involve and transaction of money, the property needs to be registered and the stamp duty for the same must be paid when accepting the gift.
 
What are the legal requirements for the gift deed?
According to the transfer Property Act, the transfer of the house property under the gift comes into effect only after the property is registered and the document pertaining to the same is signed by or on the behalf of the person gifting the property and should be attested by at least two witnesses. The registrar should make sure that the applicable stamp duty is affixed on the gift deed/ document when presented for the registration. The amount of stamp duty and registration charges applicable for the gifted property is same as the cost of the property at the time of gifting.
 
Some states provide special sale on stamp duty and registration charges if the property is gifted to a relative or a family member. Maharashtra has capped the stamp duty charges at Rs 200 for the gifting of the residential or agricultural land to one’s spouse, children, grandchildren or wife of a son who has died.
 
Income tax applicable to the gifted properties
According to the Income-tax laws, the value of the gifts received by the person during a year is fully exempt, as long as the total value of the gifts received in a year is limited to Rs 50,000. If the value of the gifts exceeds Rs 50,000 then the gifts become taxable without any threshold exemption. The Income Tax laws give special treatment to the gifts exchanged between the relatives. The gift (moveable or immoveable) exchange between two close relatives is fully exempted from tax bracket without any upper limit. Close relatives include parents, spouse, siblings, siblings of the spouse, lineal ascendants and descendants of the person or their siblings.
 
If the property is received as a gift from a close relative, then the first instance of the tax will arise when the said property is sold to an outsider. The cost, for the purpose of income tax, should be taken as the cost that was paid for the property by any of the previous owners. The profit is treated as either long term or short term, depending on when the property is sold.
 
If the property is sold within 36 months, then the profit acquired in the months is added to your regular income and taxed accordingly. If the property is sold after 36 months then the seller gets the benefit of indexation of the property as well as the option to claim exemption from payment of 20% long term capital gains by investing in a residential house or capital bonds of Rural Electrification Corporation or National Highway Authority of India.
 
Things to know:

1. What is a gift deed? Gift deed is the transfer of the property from one person to another as a means of gift. A gift deed is valid only if it is done without any consideration of anything in return by the family member or friend. It is mandatory to register the gift deed, according to Section 17 of the Registration Act, 1908.
    
2. How can one make the gift deed for the property? According to the Transfer of Property Act, the transfer of a house or property under a gift which needs to be effected by the registered instrument or the document signed by or on behalf of the person gifting the property in presence of two witnesses.
    
3. Can a gift deed be challenged? Yes, the gift deed can be challenged in the court based on the legality subject to the law of limitation and proof of its legality.
    
4. Who can give the gift deed? The person who id the owner of the property can gift the said property to the relative or a third person. The gift, however, will be considered valid only if it is done without any consideration for anything in return.

How to Transfer a Loan from One Lender to Another?

In 2019, the RBI went on a repo rate reduction spree, reducing the repo rate every two months bringing it to an all-time low at 5.4 percent. RBI further asked the private and public sector banks to reduce their home loan rate that will help in passing the benefit of the reduced repo rate to the home buyers. Since the banks only change their interest rate quarterly, it is expected that this year the home loan interest rates will reduce further.

The homebuyers who are sitting on fence waiting for the right time to take the home loan can take a step towards it. The homeowners who are already servicing home loan can also change their loan lender if they wish to move to the lender offering a lower home loan.

There can be many reasons apart from the better interest rate to change the lender. A borrower may want to transfer the loan if they want the top-up loan on the existing loan and the current lender is not wishing to grant the same.

Process of transferring the home loan

To transfer the loan, the current lender needs to be paid in full, but the new lender will not release the payable amount unless the original property documents have been received. The borrower can ask the existing lender to issue the letter to the new lender. The letter should mention the outstanding amount, the property documents lying with the existing lender, and the undertaking that the existing bank will hand over all the documents to the new lender once the payment has been received.

The new lender will treat this as the new loan application and will do all the necessary due diligence before approving your home loan. The new lender will also look at your credit score and payment history to know about your repayment capabilities.

Charges involved in transferring the home loan

When changing the loan lender, you may have to pay charges applicable for the facility to both the lenders. The existing lender may levy prepayment charges on the home loan. It is important to note that banks and financial institutes are not allowed to levy charges on prepayment of the loan in case of the floating interest rate. If the borrower is prepaying the home loan from their personal fund then the banks cannot charge the borrower, even if they have a fixed rate of interest.

 

The borrower will have to pay the new lender the processing fees which can be anywhere between 0.25 personal to 0.75 personal. Depending on the customer, the bank may also waiver the fees to a nominal amount. It is important to remember that since the new lender will treat it as a new loan, you are bound to pay for registration charges and stamp duty.

Everything you Need to Know About Stamp Duty Charges and Rates

When you buy a property, the government levies a tax on the transaction of the property i.e, when the owner of the property changes from one person to another. The tax levied is called stamp duty and every property transaction, both residential and commercial, as well as freehold or leasehold properties, involves stamp duty charges. The rate of which differs from state to state.

How is stamp duty calculated?
Every state has its own stamp duty slab and it generally varies from 3 percent to 10 percent. It is the buyer who is responsible to pay the stamp duty charges.
Stamp duty is calculated on the higher value between the ready reckoner rate and the agreed value of the property. For example, if the value of the property is Rs 60 lacs but the agreed payment of the same if Rs 50 lacs, then the stamp duty is paid on Rs 55 lacs.

Stamp duty percentage:

1. Property Status: The status of the property plays an important role in determining the stamp duty charges.
2. Location: Location of the property i s very important like metropolitan city, suburbs, rural area etc.
3. Age of the owner: Some states give discounts to senior citizens.
4. Gender of the owner: To encourage the women to buy properties, some states have stamp duty rates fixed at 1 percent.
5. Usage of the property: Residential or commercial properties have different stamp duty rates.
6. Type of property: Flats and independent houses have different stamp duty rates. 

How to pay stamp duty?

The government of India allows the buyer to pay the stamp duty in one of the three methods: Franking method, non- judicial paper or e- stamping method.

1. Franking method: Under this, the agreement is printed on plain paper. This paper is then submitted to an authorized bank which processes the paper through the Franking machine.
2. Non- judicial stamping method: The agreement between the parties are written down on a paper and it has to be officially registered within four months.
3. E- stamping method: The buyer can pay the stamp duty online through RTGS/ NEFT method. The stamp duty certificate can then be downloaded for registration purposes. 

Can someone evade stamp duty charges?

Some buyers undervalue the property to escape paying high stamp duty and the real estate sector suffers from this practice. Evading stamp duty charges can attract the government to penalise you for the same. The charges for the penalty differ from state to state but it can range from 8 percent to 20 percent and in some cases jail time can also be given.

How can one save on stamp duty charges?

Every state allows discounted stamp duty charges for women. So if a buyer wants t save on stamp duty then they can register and buy the property in the name of the female family member. While looking at properties, you can look for the locations that offer the lowest stamp duty to buy the property.

Developers run offers during the festive season and may grant you stamp duty discount and offer to pay it themselves.

Stamp duty in various cities

Stamp duty in Mumbai, and Pune ranges to 3 percent to 6 percent. Stamp duty in Nagpur is fixed at 6 percent And Stamp duty in Chennai is also fixed at 7 percent while the stamp duty in Bengaluru ranges from 2 percent to 5 percent.

The stamp duty in Ahmedabad is 4.90 percent while the same is ranges from 4 percent to 7 percent in Delhi and Kolkata.

All You need to Know about Stamp Duty on Property

Under Section 3 of the Indian Stamp Duty Act, 1899, it is mandatory for the buyer to pay the stamp duty and the registration charges when buying a property. It must be paid after the sales deed is processed and the amount must be mentioned clearly in the sales deed. The sales deed and the proof of the stamp duty payment stand as proof of your property ownership.

We discuss everything you need to know about the stamp duty before buying a house:

Stamp duty rate

It varies from state to state. Every state has its own stamp duty rate. Many states even offer discounted stamp duty rates if a woman is applying as the owner or co-owner.

Registration fees

Even though stamp duty varies, registration charges are the same across the country.

The penalty in case of non- payment

Since stamp duty is onetime payment, there’s also a penalty for non-payment of the same. If one fails to make the payment, then they can be fined up to two percent of the total cost of the property that needs to pay every month along with the outstanding payment.

Stamp duty for apartments

The apartment owners have to pay the stamp duty along with the individual share of the property. For example, if a property is built on 20,000 sq ft and there are five apartments, then each owner will have to pay stamp duty for 4,000 sq ft.

Documented proof of ownership

If you have paid the stamp duty, then the same is mentioned in the sales deed which acts as the proof of your ownership of the property, in case there is any dispute over the ownership in the future.

State subject

Every state has its own stamp duty laws and has the freedom to change them as per requirement. The stamp duty amounts to one the largest revenue collection of every state.

Online payment of stamp duty

Many states have given the provision to pay the stamp duty online. Few states are also offering discounts on the online payment of stamp duty.

Home loan eligibility of LIG

Earlier, the banks did not add stamp duty and registration charges to the property’s cost which caused the home buyers to part with their own savings. In 2015, the RBI directed banks to factor the stamp duty cost and registration cost if the cost of the property is less than Rs 10 Lacs. This was aimed to motivate the low-income group to invest in property.

Stamp duty for home loan agreement

Banks charge stamp duty if you are availing the home loan. The charges can be anywhere around 0.1 to 0.2 percent. The bank asks you to keep the property documents with them until you have paid the entire loan amount.

Finance your Second Home with these Tips

After buying a home and repaying most of the home loan, most homebuyers want to invest in a second home. But often homebuyers are not aware as to how to fund their purchase. 

We share the tips that can help you to finance your second home:

• Another home loan: To fund your second home purchase one can always approach the banks or financial institutes to give out a loan. However, the banks are much stricter as when approving the second home loan. They assess your financial standing carefully to make sure whether you are capable of repaying the loan amount or not. If the banks do not approve your home loan, one can get the home loan against the assets like jewellery, bonds, insurance, mutual funds etc.

• Top-up loan: If you do not want to go through the entire hassle of retaking the home loan, then you can ask for a top-up loan. The EMIs of the first loan you are paying will be clubbed with the EMIs of the 'second' loan you will take.

• Property value: When giving out a home loan for the second time, the banks try to look into the market value of both the properties. It is advised that the second property you are buying should be cheaper than the first property to make sure that your home loan gets approved.  

• Renting the property: Most often, people rent their first property and then take out the home loan to buy the second property. This help is keeping the financial flow in check without any hiccup of EMI payment. The banks are assured as well that along with the rent amount, you will be able to pay your home loan EMI.  

• Loan against property: Another great option to get a home loan is to use your first property as an asset and get a loan against it. The banks will approve the loan on the current market value of the property, and a homebuyer can add their own savings to complete the purchase.  

Buying a second property has its own merits and demerits, not to forget the tax advantage that comes with it. However, the experts' advice the home buyers to carefully invest in the second property making sure that their finances are not affected by paying the home loan EMI for two houses. One should also carefully read the terms and conditions of the home loan application before filling out the form. 

What Budget 2020 Brought for the Real Estate of India?

On February 1, 2020, the Finance Minister Nirmala Sitharaman presented the annual Budget 2020. This is the government’s second budget of the term. 

The Finance Minister, in her speech, said that “Fundamentals of the economy are strong and that has ensured macroeconomic stability. Inflation has been well contained. Banks saw a thorough cleaning up of accumulated loans of the past decade, and then they were recapitalized. Companies were provided with an exit through the IBC. Several steps on the formalization of the economy were taken up.”

However, there were certain provisions made for the real estate sector of the country. we list them all:

·         Affordable housing: The government has been trying to boost the affordable housing segment to achieve the dream of ‘Housing for all’ by 2022. To further work on this, the government announced last year that an additional deduction of Rs 1.5 lacs will be given for the interest paid on the loans taken to purchase the affordable house. The deduction was allowed on the loans taken on or before March 31 2020. To make sure more buyers could avail the benefit, the Finance Minister extended the date of loan sanctioning by one year. To increase the demand of the affordable housing, the Finance Minister announced that tax holiday will be provided on the profits earned by the developers of affordable housing project approved by March 31, 2020. The Finance Minister also extended the date of approval of affordable housing projects for availing the tax holiday by one year. 

·         Concession on real estate transactions: To calculate the tax for the capital tax gains, business profiles and other sources in respect to the transactions in real estate, if the consideration rate is less than the circle rate by more than 5 percent then the difference is counted as income for both the buyer and the seller. To ease the calculation of the transactions and provide relief to the sector, the finance minister proposed the limit to be increased from 5 percent to 10 percent. 

·         Infrastructure: The Finance Minister proposed an allocation of Rs 100 lac crore to be invested in the next five years for the development of the real estate and infrastructure of the country. 

·         The concessional tax rate for cooperatives: Cooperative societies play an important role in boosting the economy of the country by facilitating the access to credit, procurement of the input and marketing of the products to their members. Currently, the cooperatives are charged with 30 percent surcharge and cess. To bring more parity among the cooperatives and corporates, the FM proposed that the cooperative societies will be taxed at 22 percent + 10 percent surcharge + 4 percent cess with no further deduction. The FM also proposed that the cooperatives societies should be exempted from Alternative Minimum Tax (AMT) just like the companies under the new tax regime are exempted from the Minimum Alternate Tax regime. 

·         NBFCs: The FM proposed that the NBFCs should be eligible for the debt recovery under SARFAESI Act 2002, to be reduced to Rs 100 crore from Rs 500 crore.

·         Personal Tax: New tax regime was introduced in this year’s Budget:

·         10 percent for the income between Rs 5 lac to Rs 7.5 lac as against the current rate of 20 percent. 

·         15 percent tax for the income between Rs 7.5 lacs to Rs 10 lacs as compared to the current 20 percent. 

·         20 percent tax for the income between Rs 10 lacs to Rs 12.5 lacs as compared to 30 percent. 

·         25 percent tax for the income between Rs 12.5 lacs to Rs 15 lacs as compared to 30 percent. 

·         The annual income of up to Rs 5 lacs is non- taxable.

Where do you Fall in the CashFlow Quadrant?

Everybody wants a future that is better than their present. Most people want to be richer in the coming time of their life. Is there a secret that only the rich know; or is it a code that one who cracks, becomes rich?

There are plenty of theories explaining what rich do differently that they get richer, and what wrongs do poor commit that they are doomed to stay poor. A lot has been written about how changing one’s attitude can start building one’s wealth.

One such concept that clearly explains this is ‘Cash Flow Quadrant.'

Active and Passive Income
Before we delve into the details of the quadrant, we should first understand the concept of active and passive income. In simpler terms, the income you earn as wages for your job, like your salary, is called active income. It involves a certain kind of activity. You work for money.
The other income is passive income. In this case, you use your money to create more wealth without any activity. It is like an investment. Say you buy a house and rent it. This rental income is your passive income. You don't have to work for it. Your money works for you. As Robert Kiyosaki describes it, "You earn money while you are sleeping."
On similar lines, your salary or income from the business is active income, while your returns from investments are your passive income. Entire Kiyosaki’s philosophy is around maximizing this passive income.

The First Quadrant: Employed (E)
Most people in the world belong to this quadrant. They want skills that pay high. However, these people 'trade their time for money'. It means that if one wants to earn more, he will have to put in more hours (efforts). They may keep switching jobs whenever they want higher pay.
These people look for security in their lives and avoid risks. They do not get into the business, thinking it to be risky. They do not have any passive income.

The Second Quadrant: Self-Employed (S)
These kinds of people have high standards of working. They are much tolerant of risks. Hence, they work for themselves.
Doctors, Lawyers, Accountants, Consultants are some of these people. They do not think they can delegate their work. They do not hire other people. This means they can earn only while they are at work.
Though they have better control over their lives yet, if they need more money, they will work for more hours. Resultantly, they have a job, not a business.

The Third Quadrant: Business Owner (B)
They are risk-takers. They create a system of product or service that enables them to earn even when they are not working.
They know they would need people for it. They hire talented folk. They delegate their work as much as possible and do not work all by themselves. Here it is where they are different from self-employed. They may leave their system for a while and still, it will be working. They just manage the employees.
For them, being a job seeker is risky. You may be fired in a slowdown. Hence, when they need more money, they create (or acquire) a new product or new system that generates money for them.

The Fourth Quadrant: Investor (I)
They are the best in all four. They find the assets that give them enough returns. Sometimes they use other people's money to acquire those assets. The more assets they create, the more cash flows in and using this cash, they acquire even more assets. They do not spend time managing the employees.
Most of their income is passive income. In fact, as much as 70% is passive income that is returned from investments, and only 30% as wages.

The Two Halves
We discussed the traits of the quadrants. There is still a difference in characteristics of the left and the right.

The E&S: As one can see, this half of the quadrant does not invest. They work and their money is only proportional to their work. They have no passive income. Since they have no passive income, they do not care for their debts and taxes.
The B&I: This half has a system that generates passive income for them. Even if they do not work, some portion of their income would still be available to them. They take advantage of most tax breaks.
How the Rich Gets Richer?
The left half group (E&S) pays the highest tax, and they are under maximum debt.
For instance, say a person from this group buys a car. The person has to pay the tax on the salary. She also has to pay the tax on the car. They would also have to keep paying the monthly installments of the loan taken for this car.
Instead, if the person on the right half (B&I) buys a car, he can legally buy it in the name of his business. All the tax on the car is exempt because it is classified as 'logistics.' The amount spent on buying the car is deducted from taxable income, and the person has to pay less tax.
Similarly, tax paid on income is much higher than the tax paid on Capital Gains.
While the left half people keep spending over unnecessary fancy stuff, the right half spends on buying assets and creating new products. When E&S people would be throwing away their annual bonuses on liabilities (buying some stuff that does not create money), B&I would spend it on new avenues. Later, when these assets pay their returns, they would have much more money to spend.
E&S people believe in earn and spend. They forget that their money will be eaten by inflation. Say you have ₹ 100 today. A car too costs ₹ 100 today. Now, since the inflation rate in India currently is 7.5%, the car would cost ₹ 107.5 next year. Meanwhile, your ₹ 100 stays the same. It means your money has lost the value. If you still want to buy it, go work harder and earn another ₹ 7.5.
Contrarily, a B or I kind of person might have invested this ₹ 100 in a mutual fund. If it returns with a reasonable CAGR of 12%, he would have ₹112 next year. Not only can he buy the car, unlike E or S person, but he will also save ₹5. The money has rather grown. He beats the inflation in its own game.

The Winding Down
If you are in the left half, move to the right half as quickly as possible. If you are a B person, become the I person. It is not very tough.
E & S people have a short-term vision and they want instant gratification. The mantra for becoming the I person is to have a long-term vision, not to be lured with instant gratification, and trust the power of compounding. The choice is clear.