Gift Deed in India: Things to Consider While Transferring

Introduction

Gift Deed in India: A gift of property is the transfer of ownership of property by one person to another through a gift deed. Gifting a property to a loved one through a gift deed has some financial implications that you need to consider first.

Table of Contents

• What is a Gift Deed in India?
• Key Features of a Valid Gift Deed
• Benefits of Transferring Property via Gift Deed
• Gift Deed Tax Implications in India
• Step-by-Step Process to Register a Gift Deed in India
• Documents Required for Gift Deed Registration
• Stamp Duty and Registration Charges on Gift Deed
• Gift Deed vs Will: Which is Better for Property Transfer?
• How to Draft a Gift Deed
• Gift-Deed Rules
• Parts of Property Gift-Deed
• Neither Money nor Power Is Involved
• You Are the Owner of Your Property When You Gift It
• Relationship Between the Donor and the Donee
• Disadvantages of Property Gift Deed
• Can a Gift Deed Be Canceled by Agreement?
• Common Mistakes to Avoid While Executing a Gift Deed
• Frequently Asked Questions

What is a Gift Deed in India?

A gift deed in India is a contract used when one person wishes to gift his property or money to another. A movable or immovable property can be voluntarily gifted from a donor to a donee using a gift deed. A gift deed allows the property owner to gift the property to someone. This must be executed out of natural love and affection and must comply with the legal requirements for gift deed as per the Transfer of Property Act, 1882.

Avoids future disputes arising out of inheritance or inheritance claims. A registered gift deed also saves a gift deed because, unlike in the case of a testament, the transfer of property takes place immediately. You do not need to go to court for the execution of the gift deed.

Key Features of a Valid Gift Deed

To ensure a valid gift deed in India, the document must meet certain legal requirements. It must clearly mention the donor (person giving the gift), the recipient (person receiving the gift), and the description of the property being transferred.

The deed should be signed by both parties in the presence of witnesses. One of the key differences between a gift deed vs will in India is that a gift deed involves an immediate transfer of ownership, while a will takes effect only after the death of the testator. Additionally, a gift deed cannot be revoked once executed, except under specific circumstances.

Benefits of Transferring Property via Gift Deed

Transferring property through a gift deed in India offers several advantages. One of the major benefits is that it helps avoid the lengthy and often expensive probate process associated with a will. It also allows for a clear, legally binding transfer of property without monetary exchange.

Additionally, a property transfer to family in India via a gift deed can help in minimizing future legal conflicts, as the transfer is documented and registered. However, it’s important to be aware of the gift deed tax implications in India, as certain taxes may apply based on the property’s value.

Gift Deed Tax Implications in India

While gift deeds are a popular choice for transferring property, it’s essential to understand the tax implications of gift deeds in India. Gifts of property are subject to income tax under specific circumstances, especially when the value of the property exceeds a particular threshold. However, gifts from close relatives are generally exempt from tax. It’s also important to note that the donor may have to pay capital gains tax if the property has appreciated in value before being transferred.

Under the Income Tax Act, Section 56(2)(x):

• Gifts from relatives (as defined by the Act) are exempt from tax, irrespective of value.
• Gifts from non-relatives exceeding ₹50,000 in value are taxable in the hands of the recipient as “Income from Other Sources.”

Who qualifies as a relative?

• Spouse
• Siblings (of self and spouse)
• Lineal ascendants and descendants (e.g., parents, children, grandparents, grandchildren)
• Spouse of the above relations

Exceptions (where tax does not apply):

• Received on the occasion of marriage
• Under inheritance or Will
• From a trust or registered institution

Tip: Even if tax isn’t applicable, it’s good to maintain documentation of the gift deed for audit or scrutiny purposes.

Step-by-Step Process to Register a Gift Deed in India

To register a gift deed in India, you need to follow a specific process. First, draft the gift deed with all necessary details, including the donor, recipient, and property details. The deed must be signed by both parties in the presence of two witnesses.

The next step is to pay the stamp duty on gift deed, which varies depending on the location and the relationship between the donor and recipient. After paying the stamp duty, you need to register the deed at the local sub-registrar office. Both the donor and the recipient must be present at the office to complete the registration.

Documents Required for Gift Deed Registration

The key documents required for gift deed registration in India include proof of identity of both the donor and the recipient, proof of ownership of the property being gifted, and the duly signed gift deed document. The donor must also provide evidence of their ownership of the property, such as a title deed or sale deed. These documents must be submitted during the registration process to ensure a legal transfer.

Stamp Duty and Registration Charges on Gift Deed

Stamp duty on gift deed is calculated based on the market value of the property and the relationship between the donor and recipient. In India, if the recipient is a close relative, the stamp duty is often lower. For example, the stamp duty on gift deed to relatives is generally less than when transferring property to non-relatives. The registration charges also vary depending on the state in which the property is located.

Gift Deed vs Will: Which is Better for Property Transfer?

A common question arises: gift deed vs will in India, which is better for property transfer? A gift deed offers immediate transfer of property rights and avoids the probate process associated with a will. On the other hand, a will only takes effect after the death of the person who wrote it. While a will can be changed at any time before death, a gift deed is irrevocable once executed, making it a more certain method for property transfer.

How to Draft a Gift Deed?

In India, a “gift deed” is a legal instrument used for transferring ownership of property from one person (the “donor”) to another (the “donee”) without any monetary consideration. Here are the key points about gift deeds:

• Purpose: A gift deed allows the voluntary transfer of immovable or movable property as a gift. It is governed by the Transfer of Property Act of 1882.
• Donor and Donee: The donor is the person gifting the property, while the donee is the recipient. The gift deed should mention their names, addresses, and relationships.
• Voluntary Transfer: The donor must freely and willingly transfer ownership without any fear, coercion, or threat.
• Property Details: The gift deed should specify detailed information about the property being gifted.
• Consideration: Unlike a sale deed, a gift deed does not involve any exchange of money. It is based on love and affection for the donee.
• Acceptance: The donor must accept the gift during the donor’s lifetime for the deed to be legally valid.
• Registration: For immovable property, registration of the gift deed with the appropriate registrar or sub-registrar is mandatory. Movable property can be gifted either through registration or by delivery of the property.
• Donor’s rights: The gift deed should outline the rights of the donee, including the right to enjoy the property peacefully and sell, mortgage, or lease it.
• Witnesses: The deed should be signed and attested by at least two witnesses.

Thereafter, the gift deed should be stamped on stamp paper after payment of the required amount, depending on the value fixed by the state Government. The gift deed should be registered in the office of the Registrar or Sub-Registrar.

Gift-Deed Rules

Before gifting a property through a gift deed, you should prepare the documents, accordingly, knowing the following points:

• Good Health Conditions: The donor should be in good mental and physical health while executing the gift deed. So that the gift deed is transferred intentionally and not by force.

• Unencumbered: The property planned to be gifted should be free from any encumbrances, such as legal disputes, mortgages, or liens. The donor should verify this by conducting a full title search. The gift should only proceed with the execution of the deed.

Parts of Property Gift-Deed

When creating a gift deed, it’s important to include the name of the donor and the recipient, as well as the date of the gift. You should also include a detailed description of the gift, including any special conditions or restrictions that may apply. It’s a good idea to have the gift deed notarized to ensure its legal validity.

Additionally, both the donor and recipient should sign the gift deed in the presence of witnesses. Finally, it’s important to consult with a legal professional to ensure that the gift deed complies with all relevant laws and regulations. Here are some important things to mention in the gift deed format.

Neither Money Nor Power Is Involved

While preparing a gift deed, it is important to include a consideration clause that clearly states that there is no exchange of money in the gift. It is important to indicate that the gift is done purely out of love and affection and not due to any monetary transaction or coercion. This ensures that the gift is considered a genuine act of charity and is not viewed as transactional or coercive.

By including this consideration clause in the gift deed, all parties involved can be assured that the document accurately reflects the true nature of the gift. This helps prevent any future legal disputes or misunderstandings arising from any misinterpretations of the intentions behind the gift. Ultimately, adding this clause helps protect both the gift giver and the recipient. Ensuring that the gift is truly a happy and meaningful gesture of goodwill.

You Are the Owner of Your Property When You Gift It

It is important to note that only the owner or title holder of the property has the legal right to gift it to someone else. If you are not the owner, you cannot gift the property, even if you expect to do so.

Relationship Between the Donor and the Donee

‘Relationship’ is often used where the relationship’ is useful, as in the relationship between inflation. However, the preferred use of relationships should refer to human relations or relatedness.

However, the preferred use of ‘relationship’ should be human relationships or related situations. Must have a state of interpersonal connection (especially an emotional connection).

Disadvantages of Property Gift Deed

● Irrevocable: Once executed, it is very difficult to revoke a gift deed unless there is strong evidence of its necessity. A decision should be taken before executing the gift deed, as this is not possible to change of mind etc.

● No control over property: Once the gift deed is executed, the donor has no control over the gifted property as he has full power.

● May be misused: A system set up to avoid payment of taxes may be misused by a person who completes it.

Can a Gift Deed Be Canceled By Agreement?

If the condition is not fulfilled and is not part of the gift deed, the gift deed can be canceled by mutual agreement. A separate mutual agreement is part of the gift transaction.

However, remember that a gift deed cannot be revoked unless it is based on misunderstanding or fraud. A person cannot revoke a gift deed unilaterally. It should be challenged in court. If anyone wants to challenge the gift deed, it can be executed by the donor. It must be proved that it was affected by fraudulent practices.

Common Mistakes to Avoid While Executing a Gift Deed

When executing a gift deed, it’s important to avoid common mistakes, such as not paying the stamp duty on the gift deed, failing to register the deed, or not having the proper witnesses present. Inaccurate property descriptions or not fully understanding the legal requirements for gift deeds can also lead to issues. Ensuring that the deed is properly drafted and registered can help avoid future disputes.

Elaboration:

• Failure to Register the Deed:
  • An unregistered gift deed for immovable property is not legally valid and can be challenged in court.
  • Under the Indian Registration Act, 1908, registration is mandatory for transfers of immovable property.
  • Registration ensures the deed is legally binding and provides the donee with full ownership rights.
• Incorrect Stamp Duty:
  • Stamp duty rates vary by state, and paying the wrong amount can lead to penalties, legal issues, or rejection of registration.
  • It’s crucial to verify the applicable stamp duty for the state and property type being gifted.
• Lack of Donee’s Acceptance:
  • A gift is not complete until the donee accepts it during the donor’s lifetime.
  • Acceptance can be verbal or demonstrated through actions like taking possession.
  • Omitting acceptance can render the deed invalid.
• Ignoring Tax Implications:
  • Gifts to relatives are generally exempt from income tax, but gifts to non-relatives may be taxable.
  • Tax liabilities can impact the donee’s finances.
  • Evaluating tax implications is essential to avoid unexpected burdens.
• Missing Witness Signatures:
  • A Gift Deed requires at least two witness signatures to be legally valid.
  • Missing witness signatures can render the deed invalid.

Conclusion

a gift deed is a powerful tool for transferring property in India. Understanding the legal requirements for gift deed, the stamp duty on gift deed, and the tax implications can ensure that the process goes smoothly. Whether you’re transferring property to family members or considering a gift deed over a will, it’s essential to understand both the benefits and the potential pitfalls. For a seamless and legally sound transfer, seeking expert assistance is highly recommended.

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