GIFT DEED Legal Process & Documentation

What is a Gift Deed?

A gift deed is a legal instrument in which an individual, known as the donor, willingly transfers ownership of movable or immovable property to another person, known as the donee. This transfer is completely free of compensation or money. The title must be transferred out of love and affection. The donee must accept the gift while the donor is living for the deed to be effective lawfully. A gift deed would be appropriate for realizing the transfer of ownership of different property types including:

• Real estate (land, buildings, houses)
• Personal property (jewellery, vehicles, other items)
• Financial instruments (shares, bonds, bank deposits)

Essential Elements of a Gift Deed

To be enforceable in a court of law, a gift deed must have the following fundamental elements:

1. Voluntary Action:

The transfer of property will be valid if done voluntarily, without coercion or undue influence.

2. No Consideration:

A gift is a gratuitous transfer, even if all that is exchanged is a small token of appreciation.

3. Description of Property:

The Gift Deed should contain a clear and complete description of the property being transferred. For movable property, this could include jewellery, antiques, or vehicles. For immovable property, the deed must describe the location, area, dimensions, boundaries, and any appurtenant rights such as easement, parking, or access.

4. Donor’s Title and Ownership:

The deed must affirm that the donor has lawful ownership and clear title to the property being gifted. Any existing encumbrances, mortgages, or legal restrictions on the property should be specifically disclosed in the deed.

5. Donee's Acceptance:

The recipient must accept the gift within the donor's lifetime. If the donee dies before receiving the gift, it is void.

6. Legal Capacity:

The donor and the donee must also have legal capacity to make a gift. The donor must have the ability to make such decisions and not be a minor during the transfer.

7. Delivery of Possession:

To complete all gift transactions for movable property possession would be sufficient, while for immovable property, registration would be necessary.

How to Make a Gift Deed of Immovable Property

To give or "gift" someone immovable property such as a home or land, there is a specific legal procedure to follow to effectuate the gift:

• Prepare the Gift Deed:

Use a lawyer to prepare the deed. The deed should include specific details of the donor, donee, and property.

• Stamp Duty:

Pay the prescribed stamp duty under the respective state’s Stamp Act.

• Registration:

Register the gift deed at the local sub-registrar’s office pursuant to the Indian Registration Act, 1908. Both the donor and donee must be present along with two witnesses.

A gift deed of immovable property is legally invalid if it is not registered.

Transfer of Moveable Property via Gift Deed

For moveable property, the process is much easier:

• The donor can either create a letter and have it registered, or the donor can simply hand over the property to the donee and the donee accepts it.
• A gift deed for moveable property in not necessary, however, you should register the deed to verify the transaction.

For example: If a donor wants to give their car or a valuable piece of jewellery as a gift, the donor can give the property in front of witnesses and create a gift deed.

Who is a Gift Deed Incentive for?

A gift deed is more valuable for givers that:

• Do not want fighting amongst heirs
• Want the properties to be clear and immediate — you receive the gift now.
• Want to distribute properties while living, per their wishes.

Stamp Duty and Registration Fees

Gift deeds are taxable under stamp duty, which varies from state to state. The payable amount is determined by whether the deed was executed in favour of someone within blood relation or to someone outside blood relation:

• For transfer within blood relations:A nominal charge is payable on stamp duty and registration fees.
• For transfer outside blood relations:Stamp duty may be determined by the market value of the property akin to sale transaction.

Note:Blood relations are generally indicated in the stamp laws, covering immediate family, and generally include parents, siblings, spouse and children.

Tax Effect of Gift Deeds

Gifts, particularly concerning immovable property, are taxed depending on the value involved and the relationship of the donor and donee to each other.

• Provisions in Section 56(2)(x) of the Income Tax Act 1961 governs taxation of gifts.
• If the stamp duty value of the property is greater than Rs. 50,000/-, and the gift was given to someone outside blood relation, the value of the gift will be considered for income in the hands of the donee.
• Unless the gift was made within blood relations, on a marriage occasion, received under a will or by way of inheritance.

So, gifting property is not only significant with relations but also from a taxation perspective or otherwise by way of relationship.

Revocability of Gift Deeds

A primary difference between a gift deed and a will is the issue of revocability:

• A will may be changed or revoked at any time before it takes effect at death.
• A gift deed, once executed and all parties accept the gift, is irrevocable unless a provision permits revocation or all parties agree.

This binding legal effect makes gift deeds a serious consideration for the donor and the donee.

Advantages of a Gift Deed:

1. Transfer of Ownership Immediately:

A Will is only effective after death, whereas a Gift deed is effective immediate post execution.

2. No Probate Required:

A Gift deed does not require to follow court procedures, with an executor, in probate as a Will does.

3. Reduces Family Disputes:

Since the property has been transferred during the donor's lifetime, the heirs know the donor's intent.

4. Legal Documentation:

A Registered Gift Deed is a legal evidence of the property being transferred and does reduce disputes in the future.

Disadvantages of a Gift Deed:

1. Irrevocability:

A gift deed once executed and accepted, cannot be revoked.

2. Stamp Duty Fees:

The Registration and stamp duty costs for a gift deed is to be borne at the time of execution, unlike a Will.

3. Tax Implications:

If the Gift Deed pertains to a transfer of Immovable property to someone other than a relative, the receiver will have to bear a lot of taxes.

Common Mistakes to Avoid

1. Not Registering the Deed:

If the gift is of immoveable property and the deed is not registered, the gift will be considered as void.

2. Failure to Draft Properly:

When drafting the gift deed, you should not be using any vague or unclear terms to avoid possibilities of misunderstanding or even litigation.

3. Shortfall in Payment of Stamp Duty:

Not paying the proper stamp duty could result in a fine or penalty.

4. Not Realizing a Gift is Irrevocable:

Many people look at Gifts from the perspective that they can revoke it or take the property back from the recipient - in most instances, unless there are exceptions, you cannot revoke a gift.

5. Not Documenting Moveable Property in Gift:

Documenting movables in Gift deed is not necessary, it is still recommended to document it in the transaction of the gift in some written form to avoid disputes.

Conclusion

A gift deed can provide a very simple, highly effective way of transferring a property or asset to a loved one during your lifetime. A gift deed will give an immediate transfer, giving you and your family reassurance of the finality of your intentions. A gift deed will provide a sense of clarity if there was an eventual necessity to allocate property fairly in a family situation where all parties are at odds and would prefer to avoid contention down the road. However, as gifts are irrevocable (aside from the related issues of potential tax, potential registration matters, etc.), please consult a legal professional before proceeding further. Without doubt, a properly drafted and executed gift deed can pre-emptively eliminate burdens for your loved ones in the future.

The property or asset may be precious to you or even of little value, but you want to make an intentional, deliberate transfer which provides lasting importance for your loved ones in the future.

Whether you are giving away precious items with sentimental value or simply making the distribution of property among family members pertaining to estate planning, a gift deed may very well be an ideal mechanism to memorialize your contemporaneous desire and wishes during your lifetime for future generations.