Mr Nice owns a few properties in his name and wants to donate a piece of land to a charity he has been volunteering with. He was unsure of how to do it, and called Thomas Jacob, a Senior Advocate at Thomas & Associates, in Chennai.
Jacob explained that the property can be donated through a gift deed. “According to Section 122 of the Transfer of Property Act, 1882, a gift is defined as the transfer of moveable or immoveable property made voluntarily and without consideration,” he said. The donor must have the right to donate and the receiver (donee) must accept the gift. Section 123 says the transfer of a gift of immoveable property must be made through a registered instrument signed by the donor and attested by two witnesses. A gift deed document must be drafted giving the details of the gift and any conditions on the intended usage. This can be done by a lawyer.
The deed must be registered within four months of execution, as per the Registration Act, 1908. This entails paying a registration fee, which varies from State to State. In Tamil Nadu, for instance, the rate is 1 per cent of the market value.
An alternative is to donate through a will. But there are differences. For instance, a will takes effect after the donor’s lifetime, while a gift deed is immediate. Also, transfer by a gift deed requires paying stamp duty which depends on the value of the property.
Stamp duty rates and rules vary among States. For example, in Maharashtra, the stamp duty on gift deeds is 3 per cent of the property value. You can check if the stamp duty is waived or reduced if the gift is to a charitable organisation, especially a registered non-governmental organisation.
“You can gift self-acquired property without any restriction. However, inherited property may also be gifted. For example, after the property has been divided, your share loses its ancestral character and becomes your self-acquired property, and can be donated,” Jacob said. Otherwise, you can still gift inherited property, after getting the permission of the legal heirs.
That evening, Mr Nice bumped into N Subramanian, Advocate, Poonamallee Chief Metropolitan Magistrate Court, who specialises in property law, and T Premanand, Advocate, Madras High Court, in the park.
“Can I revoke a gift deed?” Mr Nice asked. “Certainly,” said Subramanian. “As per Section 126 of the Property Transfer Act, you can include certain conditions in the gift deed, and take back the property if they are not met. For example, you can include a term in the agreement that the construction of, say, an orphanage, must be completed within a certain period. Or you can stipulate that the property can be used for certain purposes only, and if there is, for instance, commercial activity, the gift can be revoked.”
“Can I transfer just a portion of a property?” wondered Mr Nice. “Yes, again,” said the lawyers. “A donor can give away a part of a property by clearly marking the boundaries of the portion to be given and specifying the source of power and water,” Premanand said. The rules also allow you to transfer any property but still retain the right to use it and even receive rent. Retaining benefit does not affect the transfer of ownership. It is up to the gift receiver to accept these conditions or refuse.
“What if I want the property to be rebuilt into multiple new ones and one of the newly constructed one is to be donated?” quizzed Mr Nice. “This can be a very practical situation, but you cannot gift what does not currently exist,” clarified Subramanian. However, if you have an approved plan for construction, you can gift a portion. “Can I donate, but get some money? Say, the property is worth ₹50 lakh, but I only want to get ₹10 lakh,” asked Mr Nice.
The advocates nodded a big no in unison. They clarified that if you get any payment — no matter what the value of the property is and how little you are getting — that is considered a settlement, not a gift.
Mr Nice then walked down to meet Venkat Krishnamurthy, Chartered Accountant at V Ramaratnam & Company. He wanted to understand the tax implications of donating. “You can donate a property and save on paying capital gains. This can be the preferred route, as charity does not attract tax as long as it is legitimate and supported by documentary evidence,” said Krishnamurthy.
But there is a catch. “Donation in kind is not allowed as deduction under Section 80G of the Income Tax Act.” So you must decide which is better for you — donating a property, or the money you get from selling it — based on your individual circumstances and constraints.
Besides your tax situation, another factor to consider is if the non-profit organisation’s constitutional documents permit it to accept property as donation.
The author is co-founder, Rana Investment Advisors.
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