Gift Deeds: Conditions, Clauses & Taxation

A gift deed is a legal document used for the transfer of ownership of a property from one person to another as a gift. The manner and procedure governing Gift Deeds is governed under the provisions of Transfer of Property Act, which defines gift as the voluntary transfer of existing movable or immovable property made without any consideration.

The Act stipulates certain conditions precedent which constate a valid transfer of property by way of gift. The person intending to transfer the property is called a donor and the person receiving the gift is called a Donee.

Conditions for a Valid Gift

• The Donor must be a major and must have attained majority.
• The Donor must make such transfer out of his free will and volition.
• There should not be any compensation involved for the transfer.
• The Donor must accept the transfer of the property.
• The property in question must be in existence at the time of transfer.
• Transfer must be without any coercion, fraud, misrepresentation, undue influence, or force.
• The property in question must be movable or immovable.
• The Donor and Donee must be alive at the time of transfer.

Registration Mandatory for Immovable Property

While all transfers of property constituting gifts need not be in writing or require registration, however, for a valid transfer of immovable property, it must be made by way of registered document and should be signed by the donor himself along with two persons attesting the same.

Thereby, all such gifts which have not been registered shall not constitute a valid transfer and mere possession thereof by the Donee will not confer any title upon the property till the gift deed is duly registered.

On the other hand, the law does not mandate the registration of Gift Deeds for movable property, and the same stands complete upon the execution of the transfer.

Irrevocable Nature

Transfer of property by way of gifts are ordinarily irrevocable as per Indian laws, and once the execution thereof is complete, the same cannot be cancelled or rescinded. The Donor cannot unilaterally rescind such transfer of property once the same has been accepted by the Donee.

However, if both the parties mutually decide that the gift should be suspended or revoked, upon happening of the event, it shall be a valid revocation by mutual consent.

Further, the applicable law on voidable contracts, is equally applicable to Gift Deeds, therefore, if any gift deed has been obtained by any of the vitiating factors such as fraud, coercion, or misrepresentation, then the same shall be voidable at the instance of the Donor.

Taxation on Gifts

Gift tax was reintroduced by the Government in the year 2004 under the provisions of the Income Tax Act and made all transfers of property by way of gift taxable. The tax implication under the present regime is on the Donee, being the recipient of the property and the onus of disclosure of all such receipts must be made to the income tax authorities by the Donee under the head of ‘Income from other sources” at normal tax rates.

Note: Any gift in the form of money received in cash, bank transfer or cheque which has been received without any consideration is also liable to be taxable. Further, any property such as shares, bonds, jewellery, paintings/sculptures received at less than fair market value are also taxable.

The tax implications in brief are as follows:

• Without consideration:

When any movable or immovable property is gifted without any consideration, the entire fair market value of such property would be chargeable to tax at the hands of the recipient, if the amount exceeds INR 50,000.

In case the value of the property is under INR 50,000, there is no tax payable on such transfer as gift. In case of immovable property, the value of the property shall be taken to be the stamp duty value which would be determined in accordance with the stamp duty reckoner rates.

• For inadequate consideration:

When the actual consideration of an immovable property is less than the stamp duty value and such difference exceed INR 50,000 then the entire balance amount would be taxable under the head income from other sources. Similarly, for movable property sold at an inadequate consideration which is less than the Fair Market Value by an amount that exceeds INR 50,000 the differential amount shall be taxable.

Further on, the stamp duty applicable on the gift deed differs from state to state but is largely fixed in case of movable property. Whereas in case of immovable property, it is a certain specified percentage of the market value of the property.

Exemptions from Gift Tax

Certain class of transactions have been exempted from being taxable under the present regime and the same are enumerated below:

• Any transfer of movable or immovable property by way of gift which is received from a relative, including parents, spouse, siblings, or any lineal ascendant or descendant of self or spouse or the spouse of any of the said relatives is specifically exempted from tax, irrespective of the value of the property involved.
• Further, any gift received for the marriage of the individual from any person are fully exempted from tax in the hands of the couple, except those received in cash exceeding INR 2,00,000.
• Further, gifts in contemplation of death of the Doner or Donee or given under a will or inheritance are also exempted from tax.
• Property received from a local authority such as Panchayat, Municipality, Municipal Committee or from a trust or institution is also non-taxable.

Conclusion

Understanding Gift Deeds is crucial for anyone involved in property transactions. This guide provides clarity on Gift Deeds, the associated legal framework and taxation norms. By adhering to the conditions, clauses, and taxation rules outlined above, individuals can ensure that informed decisions are made pertaining to Gift Deeds.


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