Transfer of property to director
Querist : Anonymous
I want to know can we transfer the property of Company to Director of the company?
If yes tell me the procedure and Tax Effect of the same ?
Querist : Anonymous
Can i transfer the said property as a gift to Director ? if yes , Then what will be Tax effect?
Querist : Anonymous
Can i transfer the said property as a gift to Director ? if yes , Then what will be Tax effect?
---
### 1. **Can a company transfer property to its director?**
* Yes, a company can transfer property to its director, but it must be done at **fair market value** (FMV) to avoid tax complications.
* The transaction should be properly **approved by the Board of Directors** and comply with company law and accounting standards.
* The sale should be at **arm’s length** to prevent tax scrutiny.
---
### 2. **Procedure for transfer of property from company to director:**
* **Board Resolution:** Approve transfer, specify consideration (FMV).
* **Valuation Report:** Obtain a professional valuation to fix FMV.
* **Agreement for Sale:** Draft and execute.
* **Payment:** Director to pay agreed consideration.
* **Register the sale deed** with relevant authority.
* **Accounting entries:** Remove asset from company books; record sale proceeds.
* **Tax filings:** Reflect the transaction in Income Tax and GST returns, if applicable.
---
### 3. **Tax implications if transferred at market price:**
* **In the hands of company:**
* Transfer of a capital asset results in **Capital Gains Tax**.
* Since it’s sale at FMV, the difference between sale price and cost of acquisition is chargeable as capital gain.
* For depreciable assets, **Section 50** applies (capital gains computed on written down value).
* Company must pay **corporate tax** on capital gains.
* **GST may apply** on transfer of immovable property as per current laws.
* **In the hands of director:**
* Director acquires property at FMV; no immediate tax on acquisition.
* Future capital gains on sale by director will be based on FMV as cost.
---
### 4. **What if the property is transferred as a *gift* to director?**
* The company can gift the property, but this has important tax consequences.
* **In the hands of the company:**
* Transfer without consideration is treated as **deemed sale** at FMV.
* Company must pay **capital gains tax** on FMV minus cost of acquisition.
* **In the hands of director:**
* As per **Section 56(2)(x)**, property received without consideration from a company (which is a non-relative) is taxable as income from other sources.
* Director will have to pay tax on FMV of property received as gift (except in cases where shares are transferred under certain conditions, not applicable here).
---
### 5. **Summary Table:**
| Transfer Type | Tax in Company’s Hands | Tax in Director’s Hands |
| ----------------------- | ------------------------------- | ------------------------------------------- |
| Sale at FMV | Capital Gains Tax on difference | No immediate tax |
| Gift (No consideration) | Capital Gains Tax on FMV | Taxable as Income from Other Sources on FMV |
---
### 6. **Other legal considerations:**
* Board approval and possibly shareholders' approval (depending on company law and value of asset).
* Compliance with Companies Act provisions regarding related party transactions (Section 188).
* Stamp duty on transfer and registration charges.
---
### **Conclusion:**
* Best practice is to transfer at FMV with proper approvals and documentation.
* Gift transfer is generally **not tax-efficient** due to tax liability in hands of director.
* Consult tax and legal experts before proceeding.
---
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