Gift deed takes effect immediately, reducing scope for disputes among heirs

The flip side is that the donor relinquishes control over the property right away upon gifting it

The Bombay High Court recently upheld the Senior Citizens Maintenance Tribunal’s judgment. It revoked gift deeds executed by an elderly woman in favour of her son and ordered the man to vacate the property. This decision sets a precedent for the validity and revocability of gift deeds in India. Anyone planning to use a gift deed should acquaint herself with its intricacies.

Gift deeds serve as critical legal documents, formalising the voluntary transfer of property without monetary exchange. “While not mandatory, it is advisable to execute a gift deed to create valid documentary evidence,” says Dipen Mittal, deputy general manager, Taxmann.

Key clauses

A gift deed should include essential elements such as the description of the property or asset being transferred. It should mention details of both the donor and the donee, including their names and addresses.

“The document should contain the donor’s intent to gift the property and confirm the donee’s acceptance,” says Maneet Pal Singh, partner, I P Pasricha & Co.

The deed must be dated and signed by both parties.

According to Section 123 of the Transfer of Property Act of 1882 and Section 17 of the Registration Act of 1908, it is obligatory to register a gift deed.

“It is mandatory to register a gift deed with the sub-registrar or else the transfer of property is not valid. Furthermore, the gift of an immovable property must be attested by at least two witnesses,” says Nakul Sachdeva, partner, Luthra and Luthra Law Offices India.

Who is eligible?

Any person who is mentally sound and legally competent can execute a gift deed in favour of a living donee. “Minors and individuals deemed mentally unsound cannot make a gift deed,” says Apoorva Bhadang, partner, Vesta Legal.

Soayib Qureshi, partner, PSL Advocates & Solicitors, says that gift deeds allow for the immediate transfer of assets. They come into effect during a donor’s lifetime.

This helps mitigate family disputes that may arise among legal heirs later, says Singh. Their downside is that the donor relinquishes all control over the transferred property, and certain tax implications may also arise.

Tax implications

Generally, gifts valued above ~50,000 are subject to tax in the hands of the recipient. Mittal says that gifts from relatives and those received on special occasions are exempted.

Stamp duty and registration fees are payable at the time of registering the deed. Stamp duty is calculated based on the property’s market value or the consideration amount, whichever is higher.

The applicable rate of stamp duty varies from state to state. “Maharashtra, for instance, imposes stamp duty based on whether the gift deed is for movable or immovable property, whether the donee is a family relative (the definition of relative under Income Tax and Stamp Duty may differ), and the property’s market value,” says Suresh Surana, founder, RSM India.

Legal position

There have been judgments regarding gift deeds from multiple courts.

The Maintenance and Welfare of Parents and Senior Citizens Act, 2007, prescribes the revocation of gift deeds in limited circumstances. To avoid revocation, be careful about the conditions in the deed.

“Some experts suggest executing a registered will instead, which is legally difficult to assail post-death, rather than making a gift deed,” says Ankur Mahindro, managing partner, Kred Jure.

Will versus gift deed

While both instruments facilitate the transfer of assets, they serve different purposes. A gift deed is effective immediately and during the lifetime of the donor, whereas a will takes effect upon the donor’s death. Mittal says that cash gifts exceeding ~2 lakh attract equivalent penalties, while gifts to wife or daughter-in-law could lead to clubbing provisions in the hands of the donor.

For those dealing with the complexities of asset transfer, it is advisable to consult a legal expert and make an informed decision tailored to their individual needs.

Gift deed versus Will: Know the key differences

Ownership

Gift deed: Ownership is transferred in the name of the donee as soon as the gift deed is executed and possession of the property is handed over to the donee

Will: Ownership of the property remains with the testator during his lifetime. The beneficiary gains ownership of the property only after the testator’s demise

Registration and stamp duty

Gift deed: A gift deed must be compulsorily stamped as well as registered

Will: A Will is neither required to be stamped nor registered.

Income tax

Gift deed: Income tax is payable if the value of the gift exceeds ~50,000, provided the gift is not made to a relative

Will: No tax is levied on assets received through a Will

Source: Luthra and Luthra Law Offices India