What is gift deed? Learn about this little-known legal advantage!

A gift deed is a legal document used to voluntarily transfer ownership of movable or immovable property from one person (a donor) to another (the donee) without any exchange of money. It is governed by the Transfer of Property Act, of 1882, and must be executed out of free will, love, affection or goodwill.

So, what is the difference between a gift deed meaning and the meaning of a will? 

• Timing of Transfer: A gift deed transfers ownership immediately upon execution, whereas a will takes effect after the death of the person making the Will. 
• Revocability: A gift deed once registered cannot usually be revoked unless there is a specific revocation clause. A Will can be changed at any time by the person who created it. 
• Legal Formalities: Both documents need to meet certain formalities, but a gift deed is more straightforward and requires registration during the donor’s lifetime. A will may not require registration, though it is recommended. 

Legal Definition of Gift Deed in India: 

So, what is gift deed according to the Transfer of Property Act, of 1882? According to this law, a gift deed is a voluntary transfer of certain existing movable or immovable property from one person to another without any consideration. This transfer is complete only when accepted by the done

Overview of Donor and Donee responsibilities: 

• Donor’s Responsibilities: The donor must be competent to contract: an adult of sound mind, and must willingly transfer the property. The donor should also ensure that the property being transferred is free from any obstacles unless otherwise stated. 
• Donee’s responsibilities: The donee must accept the gift during the lifetime of the donor without any conditions attached unless specified otherwise in the deed. 

Types of Gift Deeds: 

• Gift Deed of Movable property: This includes cash, jewellery, shares and other personal belongings that can be transferred through a gift deed. 
• Gift deed of Immovable Property: This includes assets like land, houses, apartments and agricultural land. The process for gifting immovable property is more strict and requires formal registration with authorities. 

Gift deed rules – Legalities and Requirements: 

• Gift deed for Cash: If the cash gift exceeds Rs 50,000, it becomes taxable unless given to certain relatives as defined by the Income Tax Act. 
• Gift deed for Property transfer: Gifting property involves proper documentation, registration and payment of applicable stamp duties. 
• Gift deed of Land: Gift deeds for residential or commercial property need to be registered with the sub-registrar. 
• Agricultural Land: Some states have specific restrictions on gifting agricultural land, such as only allowing transfers to agriculturists. 

Gift deeds for jewellery, shares and bonds: Gift deedsfor these types of movable properties must comply with certain tax regulations, especially regarding capital gains tax. Shares and bonds require formal transfer through depositories or brokers. 

Legal Requirements that ensure the validity of gift deed. 

Essential elements: 

• Offer: The donor must willingly offer the gift without any form of coercion. 
• Acceptance: The donee must accept the gift during the donor’s lifetime. 
• Transfer without consideration: The gift must be made out of love and affection, without monetary compensation. 

Sections of the Transfer of Property Act governing gift deeds:

The gift deed section in the Transfer of Property Act, of 1882, governs the execution, validity and the revocation of gift deeds. 

The eligibility of Donor and Donee lies in the following rules: 

• The donor must be legally competent
• The donee can be any person or entity, including individuals, organisations or trusts. 

Who can gift property to whom: the legal restrictions and guidelines: 

• Gifts can be made to anyone, as long as they follow the laws. An individual can not gift property to a minor unless they assign a guardian to manage it. 
• In some cases, gifts to non-relatives may trigger taxes or other liabilities.

Gift Deed Registration Process:  

Gift deed registration has five main steps: 

1. Draft the gift deed
2. Pay the applicable stamp duty
3. Get the deed signed by the donor and donee in the presence of two witnesses. 
4. Visit the sub-registrar’s office with the required documents.
5. The deed is then officially registered and becomes legally binding.  

Drafting the gift deed:

The first step is to draft the deed. This legal document records the transfer of property or assets from the donor (the giver) to the donee (the receiver) without any exchange of money. The deed must clearly mention that is being made voluntarily, out of love and without any coercion or payment involved.

Documents required for gift deed may vary slightly but usually include:

• Identity proofs of both donor and donee
• Pan Card
• Proof od ownership of the property (if immovable) 
• Sale deed, property tax receipts, etc. 
• In case of family transfers, a family tree or relationship proof may be required. 

The deed must also specify that the transfer is irrevocable, that is, it cannot be taken back after being given. 

Online gift deed registration process: 

Some states in India allow partial online registration. Donors and donees can initiate the process by submitting necessary documents online, but they will still need to visit the sub-registrar’s office for final approval. 

Common mistakes to avoid during registration: 

• Not paying the correct stamp duty
• Failing to include the acceptance clause from the donee. 
• Omitting the signature of witnesses. 

Paying the applicable stamp duty

Stamp Duty calculation for a gift deed is done based on the market value of the property. The rate of stamp duty may vary from state to state and depends on the type of property being gifted. Always make sure that the registration is happening on valid gift deed stamp paper. Without paying the correct stamp duty, the gift deed will not be legally enforceable.

Statewise stamp duty charges for Gift deed registration: 

• Stamp duty varies by state in India:
  • Maharashtra charges between 2% to 3% for family gifts. 
  • Karnataka has concessional rates for gifting property to relatives. 
  • In Delhi, the stamp duty is 4% for male donees and 6% for female donees. 

Additional registration fees and documentation costs: 

Aside from stamp duty, there are other additional charges such as registration fees, (which are 1% of the property’s market value), document handling charges and if applicable, lawyer fees. 

How to calculate stamp duty for the gift of property: 

Stamp duty is usually calculated as a percentage of the property’s current market value. Online stamp duty calculators can help determine the exact amount.

Tax implications of a Gift deed

Gift tax exemptions: 

Gifts between specified relatives, such as parents, spouses or siblings are exempt from tax under the Income Tax Act. For others, gifts exceeding Rs 50,000 may be taxable. 

Gift deed tax rules under the Income Tax Act: 

If the property is gifted to non-relatives and its value exceeds Rs 50,000, the recipient must pay income tax on the gift’s fair market value. These rules apply to both movable and immovable property. 

Capital Gains Tax on Gift Deeds of Property: 

Although no capital gains tax is applicable at the time of gifting, the donee may be liable for capital gains tax if they later sell the property. The cost of acquisition for calculating capital gains will be the same as the original cost to the donor. 

Gift Deeds for Specific Scenarios

1. Gifting property with multiple owners: 
   Scenario: When a property has multiple co-owners, gifting a part or share of the property must be mutually agreed upon by all owners. 
   Legal requirements: Each co-owner must consent and sign the gift deed for the transfer to be legally valid. For example, if two siblings co-own a property and one sibling wants to gift their share to a third party, the deed must reflect the consent of both siblings. 
   Interestingly, some co-owners might also seek specific Vastu guidelines while transferring property shares to ensure harmonious energy in the property. 

2. Gift deed to minor children: 
   Legalities: If the property is gifted to a minor, a legal guardian must act on behalf of the child for the transaction. The gift deed will clearly state the minor as a donee, but the guardian will sign the deed on their behalf. 
   The guardian’s role is to manage the property until the child reaches adulthood. Once the minor turns 18 years old, they become the rightful owner of the property and can make decisions independently. 

3. Gift deeds for Non-Resident Indians (NRIs) 
   NRIs gifting property: NRIs can gift property in India to residents or other NRIs, as long as they are compliant with the Foreign Exchange Management Act (FEMA). They must ensure that the property being gifted is eligible under FEMA regulations, (typically residential or commercial properties) 
   NRIs must also pay the applicable stamp duties and other taxes in India, but depending on their country of residence, there may be double taxation agreements that affect these duties. 

4. Transfer of Agricultural Land through a Gift Deed
   Restrictions: In some states, agricultural land can only be gifted to individuals who are agriculturists. This is to prevent the sale or transfer of agricultural land to non-farmers, as per local land laws. 
   In Maharashtra, gifting agricultural land to a non-farmer can be legally challenged unless they are qualified under state laws to own agricultural property. 

Future implications of a gift deed.

• Can a gift deed be revoked? 
  In general, a gift once made is irrevocable, unless conditions for revocation are explicitly stated in the gift deed. For example, if the donee fails to meet certain conditions or obligations mentioned in the deed, the donor can revoke the gift. However, such revocation must be supported by legal proof and may require court intervention. 

• How does the gift deed impact future inheritance and succession laws?
  When a property is being gifted, it is removed from the donor’s estate. As a result, it is no longer part of the inheritance for the donor’s legal heirs, which can sometimes lead to disputes among family members. 

• How does a gift deed affect other heirs and potential disputes? 
  Discontented heirs may challenge the gift deed, claiming undue influence, coercion or mental incapacity at the time of making the gift. This is why, having clear evidence of the donor’s intention, such as witness signatures and voluntary consent is crucial. 

Case studies and practical examples:

Example 1: A father gifting a family-owned property by Raymond Realty to his son during his lifetime to avoid inheritance disputes. The gift deedfrom father to sonwas executed with the consent of all family members, and there were no challenges after the father’s death. 

Example 2: An NRI gifting a residential property at Ten X Habitat, Thane, to a relative. The process was smooth, as they made sure to comply with FEMA regulations for every step, and followed the proper documentation process. 

Examples of gift deed disputes and legal outcomes:   

Example 1: A gift deed was challenged by the donor’s children, claiming that it was executed under coercion. The court, after examining the evidence, ruled that the gift was made voluntarily and thus, the deed stood valid. 
Example 2: A gift deed was revoked due to the donee’s failure to meet the agreed-upon conditions, one of which was taking care of the donor. The conditions upheld the revocation, as the conditions were mentioned in the deed.

Best practices to ensure a smooth gift deed process. 

• Always draft the gift deed with the help of a legal expert. 
• Ensure all conditions, if any, are clearly stated in the deed. 
• Obtain the consent of all co-owners or heirs, if applicable. This will help avoid any future disputes. 
• Complete the gift deed registration process promptly, and maintain copies of all documentation.

Common Questions and Myths: 

FAQs:

1. What is gift deed in India? 
   In India, a gift deed is a legal document used to voluntarily transfer ownership of movable or immovable property from one person to another without any exchange of money. It is done out of love, affection or goodwill. 

2. Who can gift property to whom in India?
   You can gift property to anyone you know in India, whether it is your children, spouse or sibling. It must be specified and stated in the gift deed and registered. 

3. Are gift deeds taxable? 
   In India, gifts of immovable property to non-family members may attract taxes, depending on the property’s value and relationship between the donor and donee.

4. What does the gift deed format from father to son entail? 
   The format for a gift deed from a father to a son usually begins with the details of the donor (father) and donee (son). The deed then specifies that
   – The property is a gift
   – The donee has full physical possession of the property
   – That the gift is being made of sound mind on the donor’s part
   – The donor has no revocation rights
   – The gift deed has been registered legally. 
   The deed then has the signature of both the father and the son, as well as two witnesses. 
   
   
5. How to make gift deed?
   To make the gift deed, follow these steps: 
   – Draft the gift deed
   – Include key details
   – Get witness signatures
   – Pay Stamp duty
   – Register the gift deed. 

Busting myths about gift deeds and legal transfers: 

Myth	Fact
A gift deed can be revoked at any time.	False. It can only be revoked under specific conditions mentioned in the deed or with the donee’s consent.
Gifted property still belongs to the donor.	No, once the gift deed is registered, the donor loses ownership rights.

International Comparisons

• How gift deeds in India compare to laws in the US, UK and other countries: 
  In the US, gifting property involves similar processes, but gift tax laws play a significant role. The donor may be required to file a gift tax return if the value exceeds a certain threshold. 
  In the UK, inheritance tax may apply to gifts made within seven years before the donor’s death. 
  In India, while stamp duty is a major cost consideration, the absence of gift tax simplifies. 

• International Tax treaties and their impact on NRIs using gift deeds. 
  NRIs should consider international tax treaties between India and their country of residence to avoid double taxation on the gifted property. These treaties often provide exemptions or credits for taxes paid in one country. 

Conclusion: 

In conclusion, a gift deed is a powerful legal instrument that allows individuals to transfer ownership of property or assets to their loved ones in a transparent, efficient manner. Understanding the various types of gift deeds, the legal requirements for validity and the associated registration processes is crucial for both the donor and donee to ensure that the transfer is legally sound. While gifting to family members often comes with tax exemptions, it is essential to be aware of the tax implications, especially when gifting to non-relatives or in the case of valuable properties. By following the proper procedures, avoiding common mistakes and staying informed about state-specific stamp duty charges and other formalities, individuals can smoothly navigate the process and ensure the protection of both their interests and those of their beneficiaries. 

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