Gift deed of property under construction
Arvind
(Querist) 13 July 2015
This query is : Resolved
Hi,
We have a plan to construct a three floor building on a land that belongs to my grandfather in Bangalore. The investment for the construction would be from me and is the money obtained out of the sale of another piece of land, so I would like to avoid capital gains on the sale of this property by showing an investment back in the residential building being constructed.
After construction I would be owning a part i.e. one floor of the building and I am looking for the best method to get this done. I was advised that the best way to do this would be to enter into an agreement with my grandfather ( which would be registered ) showing the investment from my side and after that my grandfather could gift a part of the building being constructed against my name which would avoid a heavy stamp duty and registration charge while ensuing the capital gains is not taxed as there is a reinvestment.
Can you kindly confirm if this is the right method and also if I would have independent ownership of my portion at the end of the construction?
Regards,
Arvind
Anirudh
(Expert) 13 July 2015
If you do as suggested by those whom you consulted, then you will not be able to save the capital gains tax.
Whether there will be any stamp duty or not is a separate issue.
Arvind
(Querist) 13 July 2015
Anirudh,
Thanks for the response but can you confirm on why capital gains cannot be avoided as there is a reinvestment being shown against a residential property which would eventually be under my name.
Also if you elaborate on the stamp duty and the registration charges via gift deed that would also help.
Regards,
Arvind
Guest
(Expert) 13 July 2015
You Could Discuss it with the CA Club of this same forum whose id is just below here.
Arvind
(Querist) 13 July 2015
Thanks I will check the capital gains part with the auditors forum but would you be able to help me with my second query regarding whether a gift deed can be made in favor of relative ( grandchildren) for a portion of the building when the building is in construction and also if that would entitle the receiver to independent ownership of the property.
Thanks in advance.
Guest
(Expert) 13 July 2015
A gift deed or settlement deed would be suitable for you.Registration fee and stamp duty of gift deed is equivalent to sale deed and in few states Settlement deed is very much less and cost effective.Consult your Local good Advocate or Senior Document Writer at your registrar office who could help you in this.
Anirudh
(Expert) 13 July 2015
You may utilise the amount of sale proceeds (including the entire capital gain portion) in the construction of the property. But the property is that of your grand father. Therefore, it is not yours.
If you get it from your grand father as 'Gift' (as stated by you), where is the question of your investing in the new residential building?
Rajendra K Goyal
(Expert) 14 July 2015
Well advised, agree with the expert Anirudh.
Arvind
(Querist) 14 July 2015
Thanks for your inputs. I posted the query on the auditors forum and was advised that I could get a portion of the land ( undivided ) gifted to me which would save me from capital gains and I will also own a part of the flat. A construction agreement for the other portions is also advised.
If I do as suggested above would I have independent ownership of the flat ?
Anirudh
(Expert) 14 July 2015
Your grand father cannot give undivided portion to you as gift. He has to clearly earmark the portion of the land which he is giving to you as gift. Then that particular portion of the property would become your absolute property. Thereafter, if you spend money to construct the residence for you on that land you will be entitled to save the capital gains tax.
That is not happening in your case.
Arvind
(Querist) 14 July 2015
Thanks Anirudh. Does this mean the land needs to be partitioned or it can be gifted without a partition and just specifying the percentage of sharing?
Anirudh
(Expert) 14 July 2015
The sub-registrar will not register any property (land in this case) which is not properly demarcated by metes and bounds.
Your proposal is fraught with many difficulties and in the bargain perhaps, you may lose both the capital gains tax exemption, as well as payment of the stamp duty, which you very much want to avoid.
Arvind
(Querist) 14 July 2015
I take your point but what would be your advice in this instance?
Pay the capital gains tax and then get the transfer done via a gift deed? Can the gift deed be done just for a part of the building say a particular floor and also can this be done while the building is in construction? Further does this entitle me to independent ownership of the building?
Appreciate an answer on this.
