Understand the legal and financial implications before gifting property

A registered gift deed transfers property ownership permanently and cannot be revoked unilaterally, unless specifically stated-donors and donees must plan with caution

The Supreme Court recently ruled in the Chelluboyina Nagaraju vs. Molleti Ramudu case that a valid gift deed once executed, registered, and accepted by the donee cannot be revoked unilaterally by the donor, unless a specific right of revocation was included in it. The case highlights the need for the donor and the recipient to make and receive gifts with caution. 

 

Understanding the basics

 

A gift is a voluntary, non-monetary transfer of ownership of existing movable or immovable property. “A gift deed is the formal legal instrument that records and gives effect to such a transfer,” says Soumya Banerjee, partner, Aquilaw.

 

For immovable property, a gift deed must be written, signed by the donor, attested by two witnesses, and registered. Without registration, the deed is void and unenforceable in court.

 

In the case of movable assets, a gift can be completed by delivery of possession. “If the parties choose to document the gift through a gift deed, then that instrument must be registered to be valid,” says Anshuman Jagtap, partner, Economic Laws Practice.

 

Benefits of a gift deed

 

A gift deed ensures immediate transfer of ownership while the donor is alive, giving the donee immediate and full legal rights to manage the asset. “As the transfer occurs while the donor is alive and can affirm their intent, it is more difficult to challenge a gift than a will,” says Jagtap.

 

A registered gift deed is difficult to revoke. “This finality provides the donee with security. It gives the done clear, undisputed ownership rights over the asset,” he adds.

 

Unlike wills, a gift deed does not go through a probate. “Probate is time-consuming, legally complex, entails significant costs, and is open to dispute,” says Banerjee.

 

“While gifts are generally subject to stamp duty, many states in India provide exemption or concessional stamp duty rates for gift deeds, particularly when made to a family member or a blood relative,” says Vishwas Panjiar, partner, Nangia Andersen.

 

Donor loses control

 

The donor loses ownership and control. “The donor cannot unilaterally cancel the deed or reclaim the property, except under very specific and difficult-to-prove circumstances such as fraud, coercion, or undue influence. A simple change of mind or a later disagreement with the donee is not a valid ground for revocation,” says Jagtap.

 

Even if a revocation clause exists in the deed, it is not automatically enforceable. “The donor must initiate legal proceedings to prove the occurrence of the specified conditions. Then the courts determine whether the revocation is justified,” says Panjiar.

 

Gifting valuable assets to select individuals may cause resentment, disputes, or lead to legal action from other family members.

 

Donee must guard against liabilities

 

Gift deeds can come with liabilities. “In case the donee has received the property entirely and there are any debts or liabilities related to it, they are responsible for the fulfilment of debts,” says Gauri Jagtap, partner, King Stubb & Kasiva, Advocates and Attorneys. She adds that the donee is responsible for ensuring there are no adverse or hidden conditions in the deed that might affect their ownership rights.

 

If the deed is poorly drafted, unstamped, or unregistered, it could lead to defects in title, hindering future sale or mortgage of the asset by the donee. Gauri says that the donee bears responsibility for paying the applicable stamp duty, completing registration, disclosing the gift in their income tax return, and paying the applicable tax.