Gifting is part of Indian culture, which embodies sharing and generosity. However, a property transfer gift must follow a legal process through gift registration. A gift deed is a legal document that legally registers a property transfer
In India, property transfers as gifts are governed by the Transfer of Property Act, 1882 (“Act”). A gift of a property involves transferring the ownership of one’s property to another person by executing a gift deed. The gift deed is an instrument through which the immovable or movable property owner transfers his/her property to another person without consideration as a gift.
The person gifting his/her property is called the donor, and the person accepting the gift is the donee. The donor must voluntarily gift the property to the donee without considering the gift to be valid under the Act. The donee should accept the gift within the lifetime of the donor for the gift to be legally valid.
The gift of immovable property will be effective when the gift deed is registered with the appropriate Registrar or Sub-Registrar. The gift of movable property is effective when the gift deed is registered or by delivery of the property. When the gift deed is registered, the transfer of the property from the donor to the donee takes place immediately, and the parties need not go to court for its execution.
Registration of the gift deed is mandatory when the donor wishes to gift immovable property to the donee. A gift deed must be executed out of love and affection towards the donee without any consideration in return.
What is a Gift Deed?
As the gift deed suggests, it is a legal document a person uses to voluntarily gift a movable or immovable property to another person. By registering the gift transfer, the document minimizes the chance of property disputes, especially in inheritance cases.
It is a valuable document for inheritance matters different from a ‘Will.’ Unlike a ‘Will,’ a gift deed becomes active immediately, and the gift deed registration charges vary by state government rules. The person gifting the property is the donor, and the recipient is the donee.
Clauses in a Gift Deed
- Details of Donor and Donee – The gift deed should mention the name, address and relationship between the donor and donee.
- Consideration – The gift deed should mention that the donor is transferring the gift property out of love and affection towards the donee, and there is no consideration of any other type involved in the transfer.
- Voluntary Transfer – The gift deed should mention that the donor is voluntarily and freely transferring the ownership of the gift property to the donee. The transfer shall be free of any fear, coercion or threat.
- Ownership of Property – The gift deed should mention that the property is in existence and the donor is the absolute owner of the gift property, and the donor has delivered the possession of the gift property to the donee.
- Property Details – The gift deed should specify the detailed description of the gift property.
- Rights of the Donee – The gift deed should mention the rights of the donee. It includes the rights of the donee to enjoy the property peacefully and sell or mortgage or lease the property.
- Acceptance by Donee – The gift deed should mention that the donee accepts the gift of the property.
- Delivery – The gift deed should mention the intention of delivering the possession of the gift property, expressly or impliedly.
- Witnesses – The gift deed should mention the name and address of the witnesses. It should be signed and attested by at least two witnesses mandatorily.
- Revocation – The gift deed need not have a revocation clause of the gift property, but it is advisable to avoid any conflict in the future.
Parties in a Gift Deed
There are two parties in a gift deed, i.e. donor and donee. The donor is the person who gifts his property, and the donee is the person to whom the property is gifted. The donor should have a sound mind and must be competent to enter into agreements at the time of making the gift.
A minor is incapable of gifting property as he/she is incapable of entering into agreements. However, the guardian of a minor can accept the gifts given to a minor on his/her behalf. The donor should make a gift without any consideration, i.e. the donor should not receive anything from the donee for making the gift.
Registration of Gift Deed
Under Section 123 of the Transfer of Property Act, 1882, the gift of immovable property is valid when gifted through a registered gift deed signed by the donor and the donee and attested by two witnesses. The gift of movable property is valid when gifted under a registered gift deed or by giving delivery of the property to the donee.
For registration of the gift deed, the gift deed containing all the clauses (as mentioned above) must be drafted on stamp paper. The donor and donee should sign on all pages of the gift deed and must be attested by at least two witnesses. The donee must accept the gift in the lifetime of the donor and when the donor is of sound mind for it to be valid.
The value of the stamp paper on which the gift deed is executed varies from state to state. The gift deed executed on the stamp paper should be registered at the Registrar or Sub-Registrar’s office under whose jurisdiction the property to be gifted is situated. If the property is movable, the jurisdiction of the Registrar or Sub-Registrar’s office is the place where the donor resides.
Tax Implications of Gift Deed
Section 56(2)(x) of the Income Tax Act, 1961, after 1 April 2017. Under Section 56(2)(x)(a), when any person receives a sum of money exceeding Rs.50,000 without consideration as a gift, then the whole of the gift amount will be taxed in the hands of the donee under the head ‘Income from other sources’.
Under Section 56(2)(x)(b), when a person receives an immovable property without consideration as a gift, and the stamp duty value of the gift deed exceeds Rs.50,000, then the stamp duty value of the property is taxable in the hands of the donee.
However, if the property or amount is received from any of the following persons, then the taxation on the gift is exempted, and the donee will not be taxed:
- If the gift is received from relatives, or
- If it is received on the occasion of the marriage of the individual, or
- If it is received under a will or by way of inheritance, or
- If it is received in contemplation of the death of the donor, or
- If it is received from a local authority (defined in Explanation to Section 10(20) of the Income Tax Act), or
- If it is received from any fund, university, foundation, other educational institution, other medical institution, hospital, trust or institution referred under Section 10(23C) of the Income Tax Act, or
- If it is received from any trust or institution registered under Section 12A or 12AA, or
- If it is received by an individual (donee) from a trust established or created solely to benefit the individual’s relative.
FAQs
Types of Transferring a Property?
As per Section 5 of Transfer of Property Act, 1882 a living person that includes an individual, company, association or a body of individuals can transfer property to other living persons, to himself or himself and others. The transfer of ownership can act immediately or in the future. The following are the ways for transferring a property:
- Sale Deed
- Mortgage
- Lease
- Will and
- Gift Deed
What are Key Factors of a Valid Gift Deed?
- The donor must gift without any consideration
- The donor and the donee must be alive when registering the deed
- The donor should be above 18 years
- Any properties mentioned in the gift deed shall exist and transferable
- The property should be registered
- The gift deed should be signed by both the donor and donee with witnesses
- The gift deed should have been drafted as per the Indian Registration Act, 1908
