Everything You Should Know About Gift Deeds

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Gifting property is a significant act, involving the transfer of ownership of one’s property to another through a legal instrument known as a gift deed. Before proceeding with gifting property, it is crucial to understand the implications and the legal procedures involved. This article provides a comprehensive overview of gift deeds, ensuring you are well-informed about this process.

What is a Gift Deed?

A gift deed is a legal document used when an individual, referred to as the donor, wishes to voluntarily transfer property or money to another person, known as the donee. This transfer can include both moveable and immovable properties. The gift deed must be executed without any consideration, meaning the donee does not pay the donor for the gift.

A gift deed has several advantages over a will. For instance, it allows for the immediate transfer of property, avoiding the potential for disputes or claims that often arise during the probate process associated with a will. Once registered, a gift deed serves as incontrovertible proof of the transaction, ensuring the donee’s ownership is legally recognized.

What Gifts Require a Gift Deed?

Any property, whether movable or immovable, that is transferable, can be gifted using a gift deed. This includes:

Real Estate: Land, houses, apartments, and commercial properties.
Movable Property: Vehicles, jewelry, artwork, and other personal possessions.
Financial Assets: Stocks, bonds, and cash.

Having a registered gift deed is crucial as it helps prevent any legal challenges that may arise in the future. Without a properly registered gift deed, the transfer of property may be contested, leading to potential legal disputes.

How to Draft a Gift Deed?

Drafting a gift deed requires meticulous attention to detail to ensure it meets all legal requirements. Here are the key elements that must be included:

Execution Date and Place: Clearly specify the date and place where the gift deed is executed. This provides a timestamp and location for the legal transaction.
Donor and Donee Information: Include detailed information about the donor and the donee. This includes their full names, addresses, dates of birth, relationship to each other, and signatures. This information helps establish the identities of the parties involved.
Property Details: Provide a thorough description of the property being gifted. For real estate, this includes the property’s address, area, type (residential, commercial, etc.), and any other relevant details.
Witnesses: Two witnesses must sign the gift deed, attesting to the authenticity of the transaction. The witnesses’ names, addresses, and signatures should be included.
Stamp Paper and Registration: The gift deed must be printed on stamp paper, with the value determined by the state government, and then registered at the registrar or sub-registrar’s office. This step is essential for the legal validity of the gift deed.

Gift Deed Rules

Before executing a gift deed, consider the following crucial points to ensure the transaction is legally sound:

Sound Health of the Donor: The donor must be in sound mental and physical health when executing the gift deed. This ensures the donor is making the gift voluntarily and not under any duress.
Encumbrance-Free Property: The property should be free of any encumbrances, such as legal disputes, mortgages, or liens. Conduct a thorough title search to verify this before proceeding with the gift deed.

Components of a Property Gift Deed

Certain elements must be included in a gift deed to ensure it is legally enforceable and clear. These include:

No Monetary Exchange or Coercion: The gift deed must clearly state that there is no exchange of money and that the gift is made out of love and affection. This is known as the consideration clause and is essential to validate the gift as genuine.
Ownership: Only the legal owner of the property can gift it. This means that the donor must have clear and undisputed title to the property.
Property Description: All relevant details about the property should be included. This ensures there is no ambiguity regarding what is being gifted.
Relationship Between Donor and Donee: Establishing the relationship between the donor and the donee is important. In some cases, this relationship can affect the stamp duty payable. For instance, gifts between close relatives may attract lower stamp duty rates in some states.
Liabilities: Any rights or liabilities associated with the property must be explicitly mentioned. This includes whether the donee has the right to sell or lease the property.
Delivery Clause: This clause indicates the actual transfer of possession of the property from the donor to the donee. It can be either expressed or implied.
Revocation Clause: The donor may include a clause specifying conditions under which the gift can be revoked. Both parties must agree to this clause for it to be enforceable.
Maintenance Clause: In cases where parents gift their property to their children in return for care, a maintenance clause should be included. This clause ensures that if the children fail to care for the parents, the gift deed can be revoked.

Disadvantages of a Property Gift Deed

While gift deeds offer many benefits, there are also some disadvantages to consider:

Irrevocability: Once a gift deed is executed, it is very difficult to revoke. This means the donor must be absolutely certain before proceeding. Changing one’s mind later is not a valid reason for revocation.
Loss of Control: After the gift deed is executed, the donor loses all control over the property. The donee gains full authority and can use the property as they see fit.
Potential for Misuse: There is a risk that the donee might misuse the system to avoid paying taxes. Proper legal advice and due diligence can help mitigate this risk.

Gift Deed Registration

Under the Transfer of Property Act, 1882, a gift deed is only valid if it is registered. The registration process involves:

Signing the Gift Deed: Both the donor and the donee must sign the gift deed.
Witnesses: Two witnesses must also sign the gift deed, attesting to the transaction.
Submitting Documents: Submit the signed gift deed along with other required documents to the registrar or sub-registrar’s office. These documents typically include identity proofs (such as PAN card and Aadhaar card), the original sale deed of the property, and other relevant agreements.

Income Tax on Gift Deed

Gifts, including those made through a gift deed, must be declared in the Income Tax Returns (ITR). The Gift Tax Act, initially abolished in 1998, was reintroduced in 2004. Under current tax laws, if an immovable property is gifted and its stamp duty value exceeds Rs 50,000, the donee must pay tax on the excess amount.

Tax Exemptions for Gift Deed

Certain exemptions apply where the donee is not taxed, including:

Gifts received from relatives by an individual or from a member by a Hindu Undivided Family (HUF).
Gifts received on the occasion of the individual’s marriage.
Gifts received under a will or by inheritance.
Gifts received in contemplation of the payer or donor’s death.
Gifts received from a local authority as defined in the Income-tax Act.
Gifts received from specified funds, foundations, educational institutions, hospitals, or trusts.

Gifting Property After Demise

To gift property after one’s demise, a will should be used instead of a gift deed. A will specifies the transfer of property upon the donor’s death and must go through the probate process.

Acceptance of Gift Deed

For a gift deed to be valid, the recipient must accept the gift while the donor is alive. If the recipient does not accept the gift during the donor’s lifetime, the gift deed is considered void.

Revoking a Gift Deed

Once property is lawfully gifted, it becomes the donee’s and cannot be easily revoked. However, Section 126 of the Transfer of Property Act, 1882, provides for revocation under specific circumstances:

If the gift was made due to coercion or fraud.
If the grounds for the gift were immoral, illegitimate, or reprehensible.
If it was agreed from the beginning that the gift deed is revocable under certain conditions.

Revocation Through Mutual Agreement

A gift deed can be revoked by mutual agreement if certain conditions are not met and are part of a separate mutual agreement form linked to the gift transaction. However, unilateral cancellation is not permitted and must be challenged in court with proof of fraud or misinterpretation.

In a nutshell

Gifting property is a noble gesture that involves careful planning and adherence to legal requirements. A gift deed is the legal instrument that facilitates this transfer, offering a clear, immediate, and dispute-free means of gifting property. However, understanding the full scope of what a gift deed entails is crucial for both the donor and the donee to ensure the process is smooth and legally sound.

In conclusion, while the process of gifting property through a gift deed may seem complex, it is a highly effective way to transfer ownership with legal clarity and immediate effect. Both donors and donees should seek legal advice to understand all implications and ensure that the gift deed is executed properly. By doing so, they can enjoy the benefits of a smooth, uncontested transfer of property, providing security and satisfaction to both parties involved. Properly executed, a gift deed not only reflects the donor’s generosity but also ensures the donee’s legal and rightful ownership of the property.

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