An Essential Guide to Property Gifting and Gift Deeds
In India, gifting land or residential property holds profound emotional and cultural significance, symbolising love, blessings and connection. Therefore, it is important to ensure that the transfer is done in compliance with legal requirements for long term prosperity.
The primary document for transfer of property ownership by gifting is a Gift Deed. In this post, we will discuss what a Gift Deed is, why is it required and what the tax implications of gifting property.
Property Gifting and Gift DeedsWhat is a property gift deed?
A Gift Deed is a legal document drafted for the purpose of transferring the ownership of movable or immovable property. The person gifting the property is called the 'donor' while the person who receives the property as a gift is called the 'donee'. For transfer of property ownership, registration of the Gift Deed is mandatory to have any legal significance.
What are the different types of gift deeds?
Gift Deeds for movable property include gifts of jewellery, cash, shares or other personal belongings. Gift deeds for immovable property are for transferring of real estate assets including agricultural or non-agricultural lands, houses or apartments. We will focus on gift deeds for immoveable properties in this post.
What counts as a Gift?
A property transfer is acceptable as a Gift under legal terms if
- It is a voluntary transfer by the property owner, without coercion or under false pretences
- There is no monetary consideration for gifting the property
Why is a Gift Deed essential?
- As mentioned, Gift Deed registration is mandatory when gifting a property. Without a registered Gift Deed, the transfer of ownership is not legally acceptable
- A Gift Deed is a record of the transfer of ownership as a gift and serves as documentary evidence in case of future disputes or tax issues related to the property. It acts as legal proof of ownership
What should a Gift Deed include
A Gift Deed should include the following details:
- Details of the Parties: Full names, addresses, and relationship between the donor (gift giver) and donee (gift receiver).
- Property Description: Clear details of the property being gifted, including size, location, and boundaries.
- Declaration: A statement by the donor affirming it is a voluntary transfer, without coercion, and out of love, affection, or gratitude.
- Rights and Liabilities: Confirmation that the property is free from encumbrances, or disclosure of any liabilities.
- Acceptance Clause: Statement confirming the donee has accepted the gift.
Is there any tax applicable on the gifting of property?
Tax implications of gifting a property depend on the relationship between the donor and the donee:
- No Tax for Immediate Family Members: If the property is gifted to specified relatives (e.g., parents, children, siblings, spouse), no income tax is applicable under Section 56(2)(x) of the Income Tax Act.
- Tax for gift to non-relatives: If the property is gifted to a non-relative and its market value exceeds ₹50,000, the value is treated as income in the hands of the donee and taxed accordingly.
Is there Capital Gains Tax applicable for selling a gifted property?
If the donee sells the property in the future, capital gains tax applies on the transaction, regardless of the relationship with the donor. The consideration value at which the donor bought the property is considered the original value and the tax is calculated based on the difference between this value and the sale value of the property now. For example, consider a father who bought the property at Rs 10,00,000 and gifted it to his son. If the son then sells the property at Rs 15,00,000, capital gains tax will apply on the difference between two values ie Rs 5,00,000
Can property only be gifted to blood relatives?
No, property transfers via gift deed can be to an immediate family member (blood relations as well as spouses), relatives and friends with the proper registration of the Gift Deed. There is no restriction for gifting a property to someone outside of family.
Registration process
Stamp Duty Calculator for Gift Deed RegistrationThe gift deed must be executed on stamp paper, signed by both parties, and registered at the sub-registrar’s office to be legally valid. Applicable stamp duty for gift deed registration varies across states. In some states like Karnataka, reduced stamp duty rates apply when gifting property to immediate family members (blood relation). You can calculate the applicable stamp duty and registration charges in your state here:
How is a Property Gift Deed different from a Will?
A Gift Deed involves immediate transfer of ownership i.e. the donee is considered the iwner of the gifted property as soon as the Gift Deed is registered. However, even if an individual registers a will, the transfer of ownership of the property only happens after their death.
How is a Property Gift Deed different from a Sale Deed?
A gift deed, unlike a sale deed, does not involve any transaction in exchange for the property. The gifted property is voluntarily given by the donor to the donee without any payment or other benefits in return. A sale deed is required when there is a payment made to the property owner in exchange for transfer of the property ownership.
Can a Gift Deed be cancelled or revoked?
A gift deed that is validly executed, accepted by the donee, and registered is generally irrevocable unless fraud, coercion, or undue influence is proven. The donor cannot revoke the gift merely due to a change of mind. However, there are certain circumstances when the gift deed can be cancelled or revoked:
- Revocation clause in the Gift Deed: If the gift deed includes a revocation/cancellation clause that specifies conditions under which the deed can be revoked, it can be canceled based on those conditions. The revocation clause must be agreed upon by both the donor and donee at the time of executing the gift deed.
- Coercion of donor: If the donor proves that the gift deed was executed under fraud, misrepresentation, coercion, or undue influence, it can be challenged and canceled in court.
- Violation of provisions under the Transfer of Property Act: If the gift is not completed legally (e.g., lack of acceptance by the donee, incomplete transfer of possession), the deed can be declared void.
In cases where the cancellation is contested, the donor must file a suit in a civil court seeking revocation of the gift deed. The court will evaluate the circumstances and decide based on the provisions of the Transfer of Property Act, 1882 and other applicable laws.
Conclusion
Registration of a Gift Deed is compulsory for transfer of ownership when gifting a property. It should be drafted and registered in consultation with a legal expert to avoid future problems.
Landeed provides expert legal consultation, drafting and registration services for Gift Deeds so that your experience is seamless and hassle-free.
