Is gift deed a tax-efficient way to transfer assets to legal heirs?

My father is 76 years old and wants to transfer several assets to me and my younger sister, who is married. These include an ancestral house and land in our village, which he wants to give to me; equity shares, currently held jointly in the names of my sister and mother, to me; and a self-acquired house in Mumbai to my sister. What is the most tax-efficient manner to ensure a smooth transfer of assets?

Amit Maheshwari, Tax Partner, AKM Global:

As per Section 56 (2)(x) of the Income-tax Act, 1961, the receipt of movable or immovable property from a ‘relative’ would be considered a gift and not be subject to income tax in the hands of the recipient. Since the parent would fall under the ambit of the definition of a ‘relative’, any assets transferred from them would not be chargeable to tax. Besides, Section 47 of the Act states that any transfer of a capital asset as gift shall not be considered a transfer and, hence, no capital gains shall result in the hands of the transferer (your father). On the basis of the above-mentioned provisions, the transfer of assets by your father shall be considered as gifts and there shall be no tax implication for you, your sister or your father at the time of transfer. Further, if you and your sister decide to sell these assets in the future, the cost in the hands of your father and the period for which he held these assets would be considered for calculating the capital gains tax. It is also recommended that your father execute a gift deed for these transfers in your and your sister’s favour.

I am 82 years old and my income sources are pension, interest from fixed deposits, rent, and dividend from shares and mutual funds. My son intends to buy a flat in his name, with his wife as a joint holder. Both are employed. I intend to contribute some amount for the initial deposit and service a portion of the EMI as well. I do not mind having a share of the house in my name for tax purposes. Please advise if this will be the right move on my part.

Shubham Agrawal, Senior Taxation Adviser, As a homeowner, you can claim the following benefits under the Income-tax Act, assuming the property will be self-occupied. You can claim up to `2 lakh of interest paid on home loan or actual interest paid, whichever is lower. If there are co-owners in the property, the actual interest paid should be divided in the ratio of their ownership. This ratio can be determined by their contribution to the purchase price. You can also claim the stamp duty and principal portions of EMI within the overall limit of `1.5 lakh under Section 80C. Therefore, it is advisable to include your name in the property title.

I am a 91-year-old retired central government employee and I get a pension. I am a widower and have two sons, both of whom are over 60 years old and have their own independent incomes. My grandchildren are also adults. I have a life-long CGHS health coverage. In 2023-24, my gross pension will be Rs 8.7 lakh and the interest from fixed deposits will be around Rs 8 lakh. Most of my investments are in debt mutual funds and hybrid funds, with their current value being Rs 1 crore. I am unlikely to make withdrawals or switch from one fund to another in this financial year. I have already deposited `1.5 lakh in my PPF account. I am not averse to giving modest donations to institutions of my choice or government-run funds. Can you suggest measures, including an HUF, for keeping the tax liability to a minimum?

Sudhir Kaushik, co-founder & CEO, Taxspanner:

In order to optimise your tax, you should opt for the new tax regime after transferring your fixed deposits to any of the following: a) HUF of your sons or grandchildren. This will make the interest taxable in HUF and you will pay nil tax after availing of the deduction. b) Gift the fixed deposits and funds to grandchildren who are above 18 years old, if they don’t have taxable income. The interest income will be taxable in grandchildren’s hands and incur nil tax liability. c) Shift fixed deposits to gold bonds, or equity-oriented mutual funds, or e-gold, or land, if liquidity is managed through mutual funds for emergency.

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