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The Ins and Outs of Gift Deeds in India: Requirements, Pros, Cons, and Registration Process

Updated: Mar 20

A Gift Deed is a legal document used to transfer ownership of a property from one person to another as a gift. It is an important tool for gifting property or other assets to family members, friends, or others. While gifting property may seem simple, it is important to understand the legal requirements, process, procedure and the stamp duty based on the state involved to ensure the transfer is done correctly.

Requirements for a Valid Gift Deed in India: To be considered valid in India, a Gift Deed must meet certain criteria. Firstly, the gift must be made voluntarily and without any consideration (payment or compensation). The donor must have the right and capacity to transfer the property, and the donee must have the capacity to accept the gift. The gift must also be evidenced by writing and signed by the donor.

Registration of Gift Deed is mandatory: As per Section 123 of the Transfer of Property Act, 1882, the transfer of immovable property through a gift must be formalised via a registered instrument. This instrument must be signed by or on behalf of the donor and attested by at least two witnesses. Alternatively, for movable property, the transfer can be executed either through a registered instrument or by delivery.

Furthermore, Section 17 of the Registration Act, 1908 mandates the registration of instruments of gift pertaining to immovable property. This registration is vital to establish the legality, authenticity, and evidentiary value of the gift deed.

To better understand the process of gifting property in India, it is helpful to examine a few real-life examples. For instance, if a person wants to transfer ownership of a house to a family member as a gift, they would execute a Gift Deed and have it registered. Similarly, if someone wants to gift shares or securities, they would execute a Gift Deed for those assets and have it registered. In the case of personal property, such as jewelry, a Gift Deed can be executed and, if necessary, registered to transfer ownership.

Case References: 1. Prakash Kaur vs. Commissioner of Income Tax: In this case, the Supreme Court of India ruled that a gift of immovable property made by a mother to her son, without adequate consideration, can be treated as income in the hands of the mother under the Income Tax Act.

2. Commissioner of Gift Tax vs. K.R. Muthukaruppan Chettiar: In this case, the Supreme Court held that the transfer of a property under a gift deed must be made without any consideration to be exempt from gift tax under the Gift Tax Act.

3. T. Arivandandam vs. T. V. Satyapal: In this case, the Supreme Court of India ruled that for a gift deed to be valid, there must be an acceptance of the gift by the donee during the lifetime of the donor.

4. D. Anasuya Devi vs. D. Manik Reddy: In this case, the Supreme Court held that a gift deed can be revoked if the donor can prove that it was executed under undue influence or coercion. Essential Documentation for Registering a Gift Deed

To officially register a Gift Deed, it is necessary to visit the Registrar/Sub-registrar's office. In this process, specific documents need to be provided, which include:

  1. The original Gift Deed.

  2. Valid identification proof, such as an Aadhar Card, Driving License, or similar documents.

  3. PAN Cards of both the donor and the donee.

  4. Supporting documentation, like a sale deed or Title Deed, to verify the donor's property ownership.

  5. A passport-sized photograph.

  6. Identification proof for the witnesses.

  7. Address proof for the witnesses.

Step by Step Guide for registration of Gift Deed in India: 1. Prepare the Gift Deed: Write down the details of the gift, like who is giving and receiving the property, and describe the property being gifted. Make sure it's clear and accurate.

2. Pay Stamp Duty: Pay the stamp duty based on the value of the property, as per your state's laws. You can find this information at the local registrar's office or online.

3. Sign the Deed: Both the giver (donor) and receiver (donee) need to sign the gift deed. Also, have two witnesses sign it to confirm the transaction.

4. Visit the Sub-Registrar: Go to the sub-registrar's office with the signed gift deed and necessary documents, like proof of identity and property documents.

5. Submit Documents: Hand over the gift deed and supporting documents to the sub-registrar for verification.

6. Verification and Registration: The sub-registrar will check the documents to ensure they're in order. Once verified, they'll register the gift deed in their records.

7. Get Certified Copy: After registration, the sub-registrar will give you a certified copy of the registered gift deed. Keep this safe—it's proof of the property transfer.

It's essential to complete the registration process within the prescribed time frame to avoid any legal complications. Additionally, consult with legal experts or professionals for guidance specific to your situation and jurisdiction.

Tax Implications of Gift Deeds:

In accordance with income tax regulations, the taxation of gifts is subject to specific rules. Here's a breakdown of the key points:

  1. Annual Exemption: Individuals can receive gifts up to Rs 50,000 in a year without incurring any income tax liability. Beyond this threshold, the total value of gifts becomes taxable.

  2. Special Treatment for Close Relatives: Gifts between certain close relatives are fully exempt from taxation without any upper limit. These close relatives include parents, spouse, siblings, siblings of the spouse, lineal ascendants, lineal descendants, and the spouse of the aforementioned relatives.

  3. Taxation of Gifted Property: When receiving a house property as a gift from a relative, tax implications may arise when you decide to sell the property. The property's cost for income tax purposes is determined by the amount paid by any of the previous owners. The profits from the sale are categorized as short-term or long-term based on the cumulative holding period, including that of the previous owner who made the payment.

    • Short-Term Gains: If the total holding period is less than 36 months, the profit from the property's sale is treated as short-term income. It is added to your regular income and taxed at the applicable slab rate.

    • Long-Term Gains: If the holding period exceeds 36 months, you can benefit from indexation on the property's cost. Additionally, you have the option to claim an exemption from paying a 20% long-term capital gains tax. This exemption can be availed by investing in a residential house or in capital gains bonds issued by entities such as the Rural Electrification Corporation (REC) or the National Highway Authority of India (NHAI).

Can a gift deed be revoked by the parties ?

Yes, a gift deed can be revoked under certain circumstances as outlined in Section 126 of the Transfer of Property Act, 1882.

  1. Agreement: If the donor and donee agree that the gift can be revoked if a specific event happens that isn't controlled by the donor, then it can be revoked.

  2. Revocability Agreement: If both parties agree that the gift can be revoked entirely or partly at the donor's will, this agreement is not valid.

  3. Similar to Rescission: The gift can be revoked in situations similar to when a contract can be canceled, except for cases where there's no consideration or if it fails.

  4. Exceptions: Apart from the above conditions, a gift cannot be revoked. However, the rights of someone who bought the property for value without knowing about the potential revocation are protected.

These provisions ensure that while a gift deed represents a transfer of property, certain safeguards are in place to protect the interests of the donor and maintain the integrity of the transaction.

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