There are various ways through which you can transfer a property that you own. It could be by way of sale, a Will or a gift. A commonly used method, especially when transferring to a family member or friend, is executing a gift deed in favor of the recipient. Although no monetary transaction is involved, it is still necessary to register the gift deed to make the transfer valid. This article will help you to know more about gift deed act and how it scores above the Will creation.
Why did the concept of Gift Deed come into existence?
A very basic foundation of a gift lies behind the intention. A promise to make a gift in the future is unenforceable and legally meaningless; even if the promise is accompanied by a present transfer of the physical property in question.
Consider this: A man gives a woman a ring and tells her that it is for her next birthday and to hold on to it until then. The man has not made a gift, and could legally demand the ring back at any time before the woman's birthday. Now, in contrast to this, suppose a man gives a woman a deed and tells her it will be in her best interest if the deed stays in his safe-deposit box. In this way, he has made a gift and would be unable to legally reclaim it 🙂
Rolling back to a few years, in India, previously there was Gift Tax Act under which donor had to pay the gift tax on the amount of gift. However, this very Act has been abolished and from Financial Year 2004-05, a new provision was inserted in the Income Tax Act, 1961. According to this, if the gift is received by
- an individual or
- from any relatives/ blood relatives or
- at the time of marriage or an inheritance
- or in contemplation of death, it will not be taxable
In all other cases, if the aggregate of gifts received exceeds Rs 50,000 in a year, the gift will be taxable as income from another source.
What according to Law can be Gifted? Any important conditions?
Some points about the gift which you might plan to present are :
- It must be transferable.
- It should be movable or immovable property.
- It should be tangible property.
- It should be with respect to present time and not to be a future property.
- The gift should be made voluntarily without any force or coercion by you or any other person.
- The said property should be There has to be some legal proof about it. You can’t gift a castle in the air sadly!
- The donor and donee should be alive at the time of the gift. Example: the transfer of a house to an unborn child is not valid.
One can gift jewelry, cash, paintings or antique collection too. But typically these need not be registered they can be handed over to the receiver directly. But if you as a donor want to register it, you can go ahead at your own discretion.
How to ensure the ‘gift’ is valid?
Whenever the gift involves an immovable property, it should always be transferred by a way of registered deed. The document transferring the property by way of gift should be registered with registrar office or engaging a lawyer. By registering the gift deed the transfer becomes legal. Irrespective of the value of the property, the gift deed needs to be registered.
Registering a gift deed with the sub-registrar is mandatory as per section 17 of the Registration Act, 1908, and as per section 123 of the Transfer of Property Act. In case you don’t go for it, the transfer will be invalid.
Is there a gifting “process”?
Yes. And it can be subdivided into these :
- Drafting the Gift Deed – A gift deed is drafted with the help of a lawyer and it describes what is being transferred and to whom. A declaration can be in written form or can be orally depending on the situation. However, under Muslim Law, it is not mandatory to give in writing for transferring the gift.
- Acceptance – Acceptance of the gift after its execution is a must. The receiver must accept the gift during the lifetime of the donor. In case he/she fails to accept the gift, it is considered invalid. The acceptance may be validated by acts such as taking possession of the property. For example, a baby who is in the mother’s womb is also a valid recipient if he/she is born within six months after declaring gift in his/her favor.
- Registration – Mandatorily, as per the Transfer of Property Act, a gift of immovable property cannot pass any title to the receiver unless it is registered.
It is posted registration only, that the title transfer is possible.
How to register a Gift Deed?
Registration of gift deed is done according to the provisions of the Indian Law. The steps involved in the registration process are:
- Valuation of the property being gifted by an approved valuation expert is very important.
- Payment of Stamp duty and transfer duty – Stamp duty varies for women and men (slightly lower for women). The stamp duty also varies from state to state and for latest rates one should visit official state government website. Certain state governments even offer some concession if the property is being gifted to blood relatives. For instance, for Delhi, the stamp duty in case of property transfer by way of sale or gift deed is the same—4% of men and 6% for women. In case of a gift deed, the rate is the same if the property is being gifted to a non-family member. If the recipient is a family member, then only 0.5% of the market value of the property has to be paid as stamp duty.
Legal Formalities for Gift Deed Registration:
The documents required for gift deed like PAN card, Aadhar card, driver's license, passport, etc. need to be submitted to the Registrar's office.
Things to be kept in mind for the gift deed are as follows:
- The gift deed should essentially mention the details of the property that is being gifted
- Details of the recipient are very important.
- It must be signed by the donor who is gifting the property.
- Both the donor and receiver must be present in the office of Registrar.
- It must be attested by at least 2 witnesses.
- The deed needs to be stamped with an appropriate nonjudicial stamp which depends upon the value of the property.
When is the ‘gift’ considered invalid?
If the donor dies before registering the gift deed then the gift is not valid. The person receiving also has to accept the gift during the lifetime of the donor.
There is no prescribed method of accepting the gift. Let’s say Mr. Verma wants to gift a property to his daughter. She may start residing in the property or has taken possession of the property. Her name being entered in the mutation records also amounts to acceptance of the gift. If Mr. Verma dies even before her accepting the gift, the gift becomes invalid.
Gift Deed in case of Minor: Minors are not eligible for the contract; therefore they cannot transfer property as a gift. A gift deed in case of the donor being a minor is legally not valid. But if the receiver is a minor, a natural guardian can accept a gift on his behalf. One can say that the guardian acts as a manager of the gifted property. Once the minor is an adult, he/she must either accept the burden or return the gift.
The Guardians who can receive the gift on behalf of the minor or insane are:
- Father’s executor
- Paternal grandfather
- Paternal grandfather’s executor.
Gift deed over a Will
Even though there is an extra cost in the form of Stamp Duty and the deed is irrevocable after execution, it has many positives over a Will.
- It is executed during the lifetime of donor and transfer happens immediately whereas the “Will” is applicable after death.
- Gift deed needs to be registered; only then it is effective. Registration renders it less liable to litigation. “Will” on the other hand is prone to litigation.
- Transfer using gift deeds are tax-free in the hands of donor and receiver.
How to Cancel a Gift Deed?
The deed can be revoked under following conditions:
- There is a mutual agreement between the presenter and the recipient
- Property transfer was simply based on the Will of the transferor but the recipient was not agreeing to accept the asset.
A gift which is not based on forgery or fraud can be revoked. Once a gift deed is prepared, one cannot revoke it until the required clause it added to it. The main feature of the gift deed is that it can be transferred to some other person without any consideration. However, it is necessary to consult a legal expert to help you through this process.
Thinking about your gifting a big asset to your wife this anniversary? Get it registered with Wazzeer! We will be happy to help you.