What Is A Gift Deed?

All that you must know about gift deeds, tax implications, essentials, documents required, conditions, etc...

Roshni Nadar Malhotra, the chairperson of HCL Technologies and India's wealthiest woman, recently made headlines after receiving a significant asset transfer through a Gift Deed.

This legal instrument, often used in estate planning and wealth distribution, enables individuals to transfer property or financial assets without monetary exchange.

Whether used for family inheritance, tax planning, or charitable purposes, understanding the nuances of a Gift Deed is crucial.

Here's a comprehensive FAQ addressing the essential aspects of Gift Deeds in India, their benefits, legal requirements, and potential implications.

Frequently Asked Questions: Gift Deed in India

What is a Gift Deed?

A Gift Deed is a legal document that transfers ownership of a property or asset from one person (the donor) to another (the donee) without any exchange of money or consideration.

It's a voluntary transfer made out of natural love and affection, typically between family members. The transfer is immediate and irrevocable once the deed is executed and registered.

What types of property can be transferred through a Gift Deed?

Almost any type of property can be transferred through a Gift Deed, including:

• Immovable property (land, house, apartment)
• Movable property (jewelry, vehicles, investments)
• Financial assets (shares, mutual funds, bank deposits)
• Intellectual property rights

The property must be legally owned by the donor and free from disputes.

What are the essential elements of a valid Gift Deed?

For a Gift Deed to be legally valid, it must contain:

1. Clear identification of the donor and donee
2. Explicit statement of the donor's intention to gift
3. Detailed description of the property being gifted
4. Acceptance of the gift by the donee
5. Signatures of both parties
6. Attestation by at least two witnesses
7. Registration at the Sub-Registrar's office (for immovable property)

In which situations does a Gift Deed work best?

A Gift Deed works best in the following scenarios:

• Family transfers: When transferring property to close family members
• Estate planning: To distribute assets during one's lifetime to avoid disputes later
• Tax planning: To legally minimise future tax liabilities
• Supporting dependents: To provide financial security to dependents
• Educational purposes: Gifting assets to fund education of children/grandchildren
• Special needs planning: Securing the future of family members with special needs

What are the tax advantages of a Gift Deed?

The key tax advantages include:

• No capital gains tax for the donor
• No income tax for the donee if received from relatives as defined under Income Tax Act
• Reduction in wealth tax liability (when applicable)
• Can help in legitimate tax planning within a family
• Distribution of income-generating assets can split income across family members

When should one avoid using a Gift Deed?

A Gift Deed may not be advisable in these situations:

• When the donor may need the asset in the future (since it's irrevocable)
• When there's any expectation of receiving something in return
• If there's pressure or coercion from the potential donee
• When the property has existing legal disputes or encumbrances
• If the donor is not of sound mind or under undue influence
• When the donor's other legal heirs might contest the transfer
• If proper documentation of the property is not available

What are the potential drawbacks of a Gift Deed?

The main disadvantages include:

• Irrevocability: Once executed, the donor cannot revoke the gift
• Loss of control: The donor loses all rights over the gifted property
• No tax benefit: For the donor unlike other methods of transfer
• Costs: Stamp duty and registration costs can be substantial
• Potential family disputes: If other family members feel deprived
• Limited protection: Against future creditors of the donee

How to execute a Gift Deed?

The process typically involves:

1. Drafting: Prepare the deed with all essential elements mentioned above
2. Stamp duty payment: Pay the applicable stamp duty (varies by state)
3. Execution: Both donor and donee sign the deed in the presence of witnesses
4. Registration: Register the deed at the Sub-Registrar's office having jurisdiction over the property location (mandatory for immovable property)
5. Record updates: Update property records with relevant authorities (municipal records, society records, etc.)
6. Tax compliance: Ensure compliance with relevant tax laws

What documents are required for creating a Gift Deed?

The following documents are typically required:

• Identity proof of donor and donee (Aadhaar, PAN, etc.)
• Address proof of donor and donee
• Recent photographs of donor and donee
• Property ownership documents (title deed, sale deed, etc.)
• Latest property tax receipts
• NOC from housing society (if applicable)
• NOC from bank (if property is mortgaged)
• Property valuation certificate (in some cases)

How much does it cost to create and register a Gift Deed?

The costs involved include:

• Stamp duty: Varies by state (typically 2% to 8% of the property value). For example, in Maharashtra, gifts to specified relatives for residential or agricultural property require a nominal stamp duty of Rs 200, whereas gifts to non-relatives attract a stamp duty of 5%.
• Registration fee: Usually ranges from 0.5% to 2% of property value, subject to state-specific caps
• Legal fees: Depends on the complexity and property value (typically Rs 5,000 to Rs 25,000)
• Valuation charges: If property valuation is required

Is registration of a Gift Deed mandatory?

For immovable property (land, house, etc), registration is mandatory under Section 17 of the Registration Act, 1908. Without registration, the Gift Deed for immovable property is not legally valid.

For movable property, registration is not mandatory but is advisable for maintaining proper records and avoiding future disputes.

Can a Gift Deed be challenged or revoked?

A Gift Deed can be challenged on the following grounds:

• The donor was not of sound mind when executing the deed
• There was fraud, coercion, or undue influence
• The deed was executed under misrepresentation
• The property didn't belong to the donor
• Proper legal procedures weren't followed
• The deed was not registered (for immovable property)

However, a properly executed Gift Deed cannot be revoked simply because the donor has changed their mind.

Is it possible to include conditions in a Gift Deed?

Yes, conditional gifts are possible but with limitations:

• The conditions must be lawful and not against public policy
• The conditions should be clearly stated in the deed
• The gift becomes void if the condition is not fulfilled
• Conditions cannot indefinitely delay the transfer

Common conditions include gifting property to children with a condition that they will take care of the parents.

How is a Gift Deed different from a Will?

Key differences include:

• Timing: A Gift Deed transfers property immediately; a Will transfers property after death
• Revocability: A Gift Deed is irrevocable; a Will can be changed any time before death
• Possession: In a Gift Deed, possession transfers immediately; in a Will, it transfers after death
• Registration: Registration is mandatory for Gift Deeds involving immovable property; registration is optional for Wills
• Witnesses: A Gift Deed requires two witnesses; a Will requires two witnesses (as per Indian Succession Act)
• Probate: A Gift Deed doesn't require probate; some Wills may require probate depending on jurisdiction

What are the tax implications for the donor?

For the donor:

• No income tax liability on the transfer
• No capital gains tax liability on the transfer
• Possible wealth tax benefits (when applicable)
• The donor cannot claim any tax deductions for the gifted amount
• Once gifted, the donor can't claim income from the property

What are the tax implications for the recipient (donee)?

For the donee:

• Gifts received from relatives (as defined under Section 56(2)(x) of Income Tax Act) are not taxable
• Gifts from non-relatives exceeding Rs 50,000 in a financial year are taxable as ‘Income from Other Sources’
• Future income generated from the gifted property is taxable in the hands of the donee
• Capital gains tax will apply when the donee sells the property, with the donor's purchase cost as the acquisition cost

How does a Gift Deed help in tax planning?

A Gift Deed can be an effective tax planning tool in several ways:

• Distributing income-generating assets among family members to split the tax burden
• Transferring assets to family members in lower income tax brackets
• Reducing potential inheritance tax liability (if introduced in the future)
• Legitimate way to transfer property without triggering capital gains tax
• Can help senior citizens reduce their tax burden by transferring assets to children

Can NRIs execute or receive property through Gift Deeds?

Yes, with certain considerations:

• NRIs can both donate and receive property through Gift Deeds in India
• For agricultural land, plantation property, or farmhouse, FEMA regulations apply
• For residential/commercial property, no RBI permission is required
• NRIs need to comply with FEMA regulations and file appropriate declarations
• Tax implications in the foreign country of residence should be considered
• Foreign exchange regulations must be followed if money is involved

What should one be cautious about when executing a Gift Deed?

Important precautions include:

• Ensure the property has clear title with no disputes
• Verify all legal documentation of the property
• Consult a legal expert before execution
• Consider future needs before irrevocably transferring assets
• Be aware of potential family disputes it might trigger
• Understand the tax implications thoroughly
• Ensure proper registration and payment of applicable duties

Disclaimer: This FAQ is for informational purposes only and does not constitute legal or financial advice. It is recommended to consult with a legal professional and a tax advisor for personalised guidance.