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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.
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.
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.
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.
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.
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.
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 | 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. |
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.
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.
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 |
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 |
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.
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.
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.
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.
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.
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.
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.
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.
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.
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