Transferring property is an important decision; it involves following a lot of complex legal and financial procedures. Among all the methods of property transfer, the gift deed stands out as an efficient tool, especially in cases where you are transferring the property to family or friends.

What is a gift deed? It is a legal instrument that is used to legally transfer the ownership of a property from one person to another. What makes this method stand out is that there is no buying or selling, making matters less complicated. It is an essential tool in property transfers. Key features include transparency, reducing potential disputes and fostering goodwill among family members. It offers legal clarity, strengthens family bonds and is a hassle-free way of transferring assets.

In this blog, we will get an in-depth understanding of the gift deed’s meaning, its benefits and the process of getting one.

Gift deeds are beneficial, especially in inheritance planning; they allow for the transfer of property during the donor’s lifetime, thus reducing chances for dispute in ownership.

What is a Gift Deed in India?

To define, a gift deed is a written document governed by the Transfer of Property Act of 1882. It legally formalises the transfer of ownership from the donor to the donee as a gift. However, there are some rules. To ensure the validity of the gift deed, the transfer has to be voluntary, unconditional and free of any exchange of money or compensation.

Key aspects of a gift deed include:

• Legal Framework:

• A gift deed is legally binding once registered. It emphasises that the property must be transferable and the donor must have full legal ownership.

How different is a gift deed from other types of property transfers?

Benefits of a Gift Deed

Emotional and Familial Advantages:

• It reinforces bonds by providing assets to loved ones as an act of goodwill.
• It also prevents potential disputes over the property’s inheritance by clarifying the ownership during the owner’s lifetime.

Financial and Tax Benefits:

• If the doubt, ‘Is a gift deed taxable?’ has crossed your mind, then the answer is no. Under the Income Tax Act, gift deeds of property are exempt from income tax.
• Thus, it reduces the donor’s taxable wealth, especially for high-value assets such as property.

Simplification of Asset Transfer:

• A gift deed is a straightforward and legally recognised method of transferring ownership.
• Eliminates delays and complications that are often associated with inheritance or sale.

Explaining the Meaning of Gift Deed Terms

A gift deed is more than a legal document; it is a legal expression of goodwill and generosity, clearing the way for a smooth transfer of property ownership from the donor to the donee. It embodies the donor’s intent to gift the property without expecting anything in return. Let’s understand the terms that define a gift deed:

• Donor: The property owner, who is transferring it to another person in the form of a gift. Gift deed rules state that the donor should have full, legal ownership of the property and the capacity to transfer it.

• Donee: The recipient; the one in whose name the asset is about to be transferred. According to the gift deed rules, the donee should accept this gift during the donor’s lifetime. A refusal or non-acceptance can invalidate the gift.

Unlike a sale deed, which requires the exchange of money, a gift deed operates on the rule that there is no monetary exchange between the donor and donee. This defines the selfless design of the gift deed.

Legal Implications:

Property owners seeking to transfer it to a loved one through a gift deed often have questions, such as ‘Can a gift deed be revoked?’ and ‘Can a gift deed be cancelled?’

It is conditional:

• Once the gift deed is executed and registered, it means that the donor has given away all their rights, ownership and claims to the property. So, it can only be revoked in two cases: if both the donor and the donee agree to it, or if fraud, coercion, or undue influence are legally proven.

• Ownership Responsibilities: Once the transfer is complete, the donee assumes full legal ownership of the property. So, the maintenance costs, taxes and any liabilities are now the new owner’s responsibility.

Types of Properties That Can Be Gifted

The gift deed is not restricted to assets such as houses or residential properties. There are three categories of properties that can be gifted to a loved one, each of which calls for different types of gift deeds:

Gift Deeds for Movable Property:

• Cash: Gifting cash is pretty simple. However, when it comes to large sums of money, the Income Tax Law states a requirement for documentation. This helps establish the source and purpose of the transfer.

• Jewellery and Precious Metals: High-value items, such as gold, diamond or other precious metals and gems require valuation certificates for tax compliance and legal recognition.

• Shares and Securities: These require proper documentation and more importantly, they need to comply with the Companies Act of 2013 or the SEBI (Securities and Exchange Board of India) regulations. They might also require transfer forms and approval from depositories like the NSDL or CDSL.

Gift Deeds for Immovable Properties:

• Land and Houses: The deed should include precise descriptions: survey numbers, boundaries and measurements.

• Apartments: In addition to the deed, documents such as encumbrance certificates, and other agreements like certificates that state the value of the property might also be needed.

Gift Deed for Property Transfer: Special Considerations.

• Agricultural Land: Many states have laws that restrict the gifting of agricultural property to individuals who won’t use it for its primary function. However, these regulations may vary state-wise.

• Ancestral Property: Gift deeds for property transfers, especially ancestral can be complex and require consent from other legal heirs. Failure to obtain these may lead to disputes or legal challenges.

Gift Deed Rules

To make sure that the gift deed is valid and enforceable, there are several legal rules and regulations to be followed:

Legal Requirements:

• The gift deed should be executed on non-judicial stamp paper of a value prescribed by state laws.
• The stamp paper should state the following:

• Donor’s intent to gift
• Details of the property
• Relationship between donor and donee.

• Most importantly, it should be signed by the donor, donee and at least two witnesses, in front of the sub-registrar.

Can a gift deed be revoked?

A gift deed is revocable, as long as there is a valid reason why:

• Permissible Grounds: Fraud, coercion, undue influence or if there is a mutual agreement to revoke between the donor and donee.
• Prevention Measures: To safeguard interests, any conditions for revocation should be included in the deed.

State-Specific Regulations:

• Stamp duty and registration fees vary from state to state. For example, Maharashtra and Karnataka may offer concessions for gifting property to close relatives.
• States may also have some specific rules for agricultural land, tribal land or properties in restricted zones.

Steps for Gift Deed Registration

So, how to make a gift deed? For a valid deed, you must make sure that it is properly registered. Here is a step-by-step guide on how you can get your gift deed.

Step 1: Drafting the Deed.

• Engage a lawyer to draft the deed. They will help make sure that the deed complies with the applicable laws.
• The draft should include:

• Names and details of the donor and donee.
• Detailed description of the property, such as the real estate builder, its location, etc. For example, if you are gifting a house in L&T Realty Emerald Isle, Powai, mention the entire address in your gift deed.
• A declaration of intent to gift.

Step 2: Pay the Stamp Duty and Registration Fees.

• Calculate stamp duty based on the property’s market value. The rates differ state-wise, with concessions for transfers within the family.
• Pay the registration fees, which is typically a nominal amount compared to stamp duty.

Step 3: Execution.

• The gift deed should be signed by the donor and donee, with at least two witnesses present, whose details should also be recorded.

Step 4: Submission:

• Submit the signed deed to the sub-registrar’s office.
• You also need to submit the following documents along with it:

• Identity proofs, such as the Aadhar and PAN card.
• Original property ownership documents.
• Property valuation certificates
• Witness declarations and their identity proofs.

Step 5: Registration

• Once submitted, the sub-registrar will verify if the deed and supporting documents are authentic.
• When it is successful, the deed will be registered and your gift deed for property transfer will be legal.

Paying the Applicable Stamp Duty

We already know that one of the steps to register the gift deed is to pay the registration fees and the stamp duty. Now since this is a property transfer, a vital question arises: ‘Who pays stamp duty in gift deed?’ This tax is typically paid by the donor, as they are the ones initiating this property transfer.

• Calculation:

• The stamp duty is calculated as a percentage of the market value of the property.
• In Delhi, for example, the stamp duty for gifting property to family members is 1% of the market value.
• In Maharashtra, on the other hand, it is a fixed nominal rate for close relatives.

• Concessions:

• States offer reduced rates or exemptions for property being gifted to close family members: spouses, children and siblings.
• Transfers of agricultural land or properties with lower market values also qualify for additional exemptions.

What happens if the donor pays less or evades the stamp duty?

• Legal Penalties: Underpayment or evasion of the stamp duty often results in fines or the invalidation of the deed.
• Disputes: A deed not registered properly may not hold up in court, which will further put the donee’s ownership rights at risk.

Tax Implications of a Gift Deed

Is the gift deed taxable? The taxes applicable on a gift deed vary, often depending on the donor and donee’s relationship, the property’s values and nature.

Under Section 56(2)(x) of the Income Tax Act, gifts from the following family members are exempt from taxes:

• Spouses, parents, siblings, children (including adopted and stepchildren), and their spouses.
• Lineal ascendents or descendants of the individual or their spouse.

The section also specifies tax exceptions depending on certain situations, such as gifts received during a marriage (not an anniversary), provided that the gift is cash, jewellery or other movable assets.

Tax Liabilities for Non-Relatives and High-Value Gifts:

• Should a gift received from a donor who is not family exceed Rs 50,000, the entire amount is taxed under ‘Income from Other Sources,’ from the donee.
• Immovable property gifts, where the stamp duty is over Rs 50,000 are taxed similarly. The exemption depends on the donor and donee’s relationship.

Capital Gains Tax Considerations Upon Future Sale:

• Cost of Acquisition: This is the original price of the property when bought by the donor. If the donee sells the property a few years after the gift deed is registered, they use this value to determine their capital gains. So if the donor bought the property for Rs 10 lakhs, and the donee sells it for Rs 50 lakhs, the capital gains are calculated as 50 lakhs – 10 lakhs = Rs 40 lakhs.

• Holding Period: The donor’s holding period is also considered to determine if the gains are long-term (More than 2 years) or short-term (2 years or less).

• Indexation Benefits: The indexation will apply to adjust the purchase price for inflation, in case the capital gains are long-term.

Understanding the Gift Deed Charges

There are many costs involved in creating and registering a gift deed; they can be significant, and depend on the property type, its value and the state in which it is located.

To break down these costs:

• Legal Fees: To get the gift deed drafted by a lawyer, you might have to pay Rs 5000 to Rs 25,000. This variation depends on the complexity and the property’s location.

• Stamp Duty: This ranges anywhere from 1% to 8% of the market value of the property. It varies from state to state; Karnataka and Maharashtra may offer nominal rates for family gifts.

• Registration Fees: This is typically 1 to 2% of the property’s value, but in certain states, could be capped at a particular amount. (Rs 30,000 in Maharashtra)

But what about the additional expenses?

• Valuation charges: If the market value of the property needs to be assessed for stamp duty, government-authorised valuation agencies charge Rs 1000 to Rs 5000.
• Incidental costs: This includes notary charges, photocopying and transport.

Is there a way to minimise these costs?

Yes, you can do so in the following ways:

• Leverage Family Concessions: Ensure that the gift is classified as a family transfer if possible. This way, you can avail a reduced stamp duty rate.
• Combine Transfers: Consolidate multiple property transfers under one deed where permissible.
• Research State-Specific Policies: Some states offer exemptions for agricultural land or other property types.

Required Documents for Gift Deed

To ensure that your gift deed is smoothly executed and registered, you need to submit proper documents. Any missing documents could lead to a delay or invalidation of the process.

Submit the following documents as they are mandatory:

• Identity Proofs:

• Donor and Donee should provide an Aadhaar card, PAN card, passport or voter ID.

• Address Proofs:

• Utility bills, rent agreements, or any other government-issued documents.

• Property Ownership Documents:

• Original title deeds, sale deeds or allotment letters.

• Encumbrance Certificate:

• This will help confirm that the property is free from any obstacles to ownership.

• Witness Documents:

• Two witnesses and their names and identity proofs (Aadhar or PAN card)

• Gift Deed Draft:

• Prepared and assessed by a legal expert.

The following documents are optional, but could help you get your gift deed registered quickly:

• Valuation certificate: Especially applicable for high-value properties or movable assets like jewellery.

• Tax Receipts: Submitting the updated tax receipts will confirm that there are no dues on the property.

• NOCs: This may be required only if the property is in a housing society, or under loan.

Can a Gift Deed be Cancelled?

Gift deeds, although irrevocable, can be cancelled under certain circumstances. On the legal grounds of:

• Fraud or Coercion: If it is proven that the gift deed was received by fraud, undue influence or coercion.
• Non-Compliance with Conditions: If the donee does not comply with conditions explicitly mentioned in the deed, it can be cancelled.
• Mutual Agreement: Both parties consent to cancelling the deed.

The process for cancelling the gift deed includes:

• Drafting a cancellation deed: Both parties must sign the document that outlines the reason for revocation clearly.

• Submitting it to the Sub-registrar: File the cancellation deed along with supporting documents (court orders in case of fraud)

• Pay the fees: There are registration fees and stamp duty applicable, but often at a reduced rate.

Implications for Both Parties:

• For the Donor: Regains responsibilities and ownership of the property.
• For the Donee: Loses all the rights and privileges associated with the property.

Future Implications of a Gift Deed

Gift deeds have a lot of effects on property ownership, succession planning and estate management.

It impacts inheritance and succession in the following ways:

• Properties gifted during the donor’s lifetime are not part of the donor’s estate upon their death, potentially reducing disputes.
• Donees will gain full ownership of the property, giving them the freedom to decide how they want to manage and distribute the asset in the future.

Although the donee has full rights to the property, they might face a challenge should other heirs claim undue influence or lack of consent in the gifting process.

Considerations for Estate Management:

• Strategically using the gift deed, allowing for efficient wealth distribution, and reducing all inheritance taxes or probate costs.

• Seeking legal advice will help make sure that the process aligns with long-term financial goals.

International Comparisons:

The gift deed might be a common property transfer method worldwide, but there are differences in tax treatments that can be gifted.

Practices in Other Countries:

• USA: Gifts that go beyond $17,000 a year (as of 2024), per recipient, are subject to a federal gift tax unless there are exclusions.

• United Kingdom: Gifts made at least 7 years before the donor’s death are exempt from the inheritance tax.

• Australia: Gifting is tax-free, but the donee might incur capital gains tax when they sell the property.

Cross-Border Gifting for NRIs and Foreign Nationals:

• NRIs who are gifting property in India should comply with gift deed rules set by FEMA, ensuring no violation of foreign exchange laws.

• Restrictions often apply to agricultural or plantation lands for foreign donors and donees.

Tax Treaties and Reliefs:

• DTAA agreements between countries will help avoid any double taxation, ensuring that only one jurisdiction taxes the transaction.

FAQs

1. Can property under mortgage be gifted?

• Yes, provided that the donor gets the mortgage lender’s consent, and the liabilities are disclosed.

2. What happens if the donee is not a family member?

• Tax liabilities may apply in this case, especially if the property value exceeds Rs 50,000.

3. Are oral gift deeds valid?

• No. Since a gift deed needs to be physically registered, especially for immovable property, an oral gift deed is considered invalid.

Conclusion

Gift deeds are a powerful tool for legally transferring ownership of the property, providing clarity, goodwill and financial benefits. However, to register and execute a gift deed, you have to plan carefully, comply with the law and understand what taxes will be applied.

Whether you gift a home to a loved one, or transfer shares, always remember to consult legal and financial advisors to ensure that the process is smooth, transparent and aligns with your estate planning goals.