What is a Gift Deed? Rules, Registration & Tax Implications

Understanding a Gift Deed in Property Transactions

A gift deed is a legal document used to voluntarily transfer ownership of property movable or immovable from one person to another without any exchange of money. Commonly used among family members, it ensures a smooth, tax-efficient transfer. This blog breaks down its purpose, process, tax rules, and common legal concerns.

Definition of a Gift Deed

As per Section 122 of the Transfer of Property Act, 1882, a gift deed is legally defined as a transfer of property (either movable or immovable) from one person (the donor) to another person (the donee) voluntarily, and without any consideration. The fact that a gift deed describes the transfer of property as one that is qualified by love, affection, or goodwill is important. the donee must accept the gift during the donor’s lifetime, making the deed effective immediately unlike a will, which only comes into effect after death.

Legal Framework Governing Gift Deeds

The gift deed is governed by two different laws, the Transfer of Property Act, 1882 and the Registration Act, 1908. These two laws dictate that a deed of gift is valid, only when the deed is stamped and registered with the sub-registrar's office. It is important to note that different states in India, have different stamp duty rates, therefore it is equally important to check the local laws in each state. A deed or document that did not get registered has no legal standing even if all other requirements are met.

Key Elements of a Valid Gift Deed

• Capacity: The donor and donee must be sui juris meaning of sound mind and over 18 years of age.
• Existence of Property: The existent property that is being given must exist and must be legally transferred and exercised by law.
• No Consideration: The transfer must be made for none of monetary compensation, but merely for the love of it.
• Acceptance by Donee: The Donee must accept the gift during the life of the Donor. Otherwise, the deed of gift becomes void.
• Description of Property: The deed should describe sufficiently the location, size and tenor of the property gifted.
• Execution/Signatures: The deed should be executed by the Donor and at least two witnesses in accordance with law.
• Registration: The deed must be registered, with applicable Stamp Duty to the sub-registrar's office in accordance with the Registration Act of 1908.

Who Can Execute a Gift Deed?

A 'gift deed' is more than an act of kindness. It is a legal document stating the responsibilities and rights for the person making the gift (the donor) and the person receiving the gift (the donee). The law provides clear information on who qualifies to enter into a gift deed and what types of property can be given in this case.

Eligibility Criteria for Donor and Donee

• To legally execute a gift deed, the donor must be:
  • Of age (18 years of age or older)
  • Mentally competent
  • The sole owner of the real property conveyed
• On the same token, the donee must be:
  • A living entity (a person, corporation or even a trust)
  • Able to accept such a gift

Acceptance is very important. If the donee does not accept the gift during the donor's lifetime, the gift deed is void. It is perfectly acceptable to transfer to a child if he/she was not able to receive such a gift with a guardian accepting the gift on his/her behalf.

Types of Assets That Can Be Gifted

• Immovable property: land, houses, apartments, commercial spaces.
• Movable property: vehicles, jewellery, stocks, cash, and bank accounts.

The property needs to be in existence and owned by the donor at the moment of writing of the deed, i.e., the future property of the assets that are not acquired cannot be given.

Gift Deed Between Family Members

A gift deed is a popular way to transfer property within families such as from parents to children, between siblings, or to a spouse ensuring legal clarity and avoiding future disputes. It reflects the donor’s affection and is often used to pass on inherited or self-acquired assets. Many Indian states offer reduced stamp duty for gifts made to blood relatives, making the process more affordable.

For example, Maharashtra and Delhi have lower rates for such family transfers. Executing a registered gift deed not only secures ownership rights but also simplifies inheritance planning within the family.

Gift Deed vs. Sale Deed vs. Will: Key Differences

	Gift Deed	Will
Effectiveness	Takes effect immediately after acceptance and registration.	Comes into effect only after the death of the testator.
Revocability	Generally irrevocable once accepted and registered.	Can be altered or revoked anytime before death.
Ownership Transfer	Transfers ownership immediately to the donee.	Ownership remains with the testator until death.
Legal Clarity	Offers clear, dispute-free transfer of property.	May cause disputes or challenges, especially in family matters.
Tax Implications	Generally no tax unless a substantial value is involved.	Taxable to the beneficiary after death, subject to inheritance laws.

When to Use a Gift Deed Instead of a Sale Deed?

Gift deed is perfect if the transfer is without a payment of money, particularly in case of family transfers. On the other hand, a sale deed is used when money is involved in the transaction, making it more suitable for commercial property transfers.

The Process of Registering a Gift Deed

Gift deed registration is necessary in order to make the transfer legal and enforceable. In the absence of a registration, the gift lacks legal validity in the eyes of the law. Here's a simple step-by-step analysis of how to get your gift deed registered correctly.

Step-by-Step Registration Process

• Draft the Gift Deed: Sign a gift deed on stamp paper with the assistance of a lawyer or legal consultant. It will contain all donee and donor's property and personal information.
• Get It Signed: Donor and donee both have to sign the deed in front of two witnesses.
• Visit the Sub-Registrar Office: Take an appointment and meet the sub-registrar's office where the property is situated.
• Submit Documents: Submit gift deed and essential documents (check the heading below).
• Pay Stamp Duty & Registration Fees: Pay the relevant charges (depending on property value and location).
• Registration & Handover: After registration, the donee is given a copy of the registered gift deed as legal evidence.

Documents Required for Gift Deed Registration

Document	Purpose
Original Gift Deed	Proof of gift and terms of transfer
ID proof of donor and donee	Aadhaar card, PAN card, or passport
PAN card of both parties	For tax-related compliance
Property documents	Title deed, latest tax receipt, etc.
Two passport-size photographs	For verification purposes
Witness ID proofs	Of the two witnesses present at signing

Stamp Duty & Registration Charges for Gift Deeds

State	Gift Deed
Haryana	Rural- 3% Urban- 5%
Delhi	Men- 6% Women- 4%
Karnataka	₹1,000 to ₹5,000 for family members
Gujrat	4.9% of market value
Telangana	Stamp Duty- 5% of market value Registration Fee- 0.5% of market value
Madhya Pradesh	Family Members- 2.5% of market value Non- Family Members- 5% of market value
Maharashtra	Family Members – 3% Other Relatives – 5% Agricultural/Residential Property – ₹200
Punjab	For Non-Family Members – 6%
Rajasthan	Women – Up to 4% To Wife – 1% Widow – Nil Immediate Family – 2.5%
Tamil Nadu	Family Member – 1% of the market value Non-Family Member – 7% of the market value

Tax Implications of a Gift Deed

While gifting property through a gift deed is legally valid and emotionally significant, it's equally important to understand its tax consequences. Whether you're the donor or donee, certain rules under the Income Tax Act can impact how much tax—if any—you owe.

Is a Gift Deed Taxable in India?

Gift deeds are subject to taxation under Section 56(2)(x) of the Income Tax Act, 1961. When an individual gets immovable property like a house or land without consideration and the stamp duty value exceeds ₹50,000, it is generally considered taxable income in the hands of the recipient. Exceptions apply based on the nature of the recipient-giver relationship.

Exemptions on Gift Tax Under Income Tax Act

• Parents
• Spouse
• Siblings
• Grandparents
• In-laws
• Lineal ascendants/descendants (e.g., children, grandchildren)

Additionally, gifts received on the occasion of marriage, inheritance, or under a will are also tax-exempt. However, gifts from friends or distant relatives may be taxable if they exceed ₹50,000 in total during a financial year.

Capital Gains and Income Tax Rules

Lastly, while gift receipt may not be subject to tax under some conditions, future sale of the gifted property can be subject to capital gains tax. Acquisition cost is also considered to be the same as that of the original owner (the donor), and the capital gains will therefore be taxed at disposal. The holding period is also transferred and this is what will decide whether the gains are to be taxed as short-term or long-term.

Common Legal Issues and How to Avoid Them

Gift deeds are a simple means of conveying property, but they can become troublesome if not completed properly. Let us look at them and explore how to avoid them.

Disputes Over Gifted Property

One of the common issues is family disputes, particularly if some of the beneficiaries feel omitted. For instance, leaving a house to one of the children without informing the others can lead to lengthy court fights. To avoid this, always have a registered gift deed with correct information and involve all the concerned parties.

Legal Validity and Challenges in Court

Gift deed may be revoked where it is proved to be made under mental incapacity, fraud, or duress. Deeds of such nature may be declared invalid by courts. Requesting voluntary consent and legal documentation safeguards against future liabilities.

How to Revoke a Gift Deed (If Possible)?

A registered gift deed generally cannot be revoked without the mutual consent of both the giver and receiver. However, if fraud or coercion can be established, then the court will allow revocation.

Conclusion

Gift deed is a powerful legal tool that facilitates simple, tax-efficient, and litigation-free conveyance of property especially within family members. However, to prevent inconvenience, it is worthwhile to understand its legal structure, tax implication, and registration process. With appropriate execution, it brings transparency, emotional value, and fiscal advantage to the donee and donor.