A gift deed is a legal document that facilitates the transfer of property ownership from one individual to another as a gift.
The process and rules governing gift deeds are outlined in the Transfer of Property Act, 1882 which defines a gift as the voluntary transfer of existing movable or immovable property without any consideration.
The Act specifies certain conditions that must be met for the transfer of property to be considered a valid gift. The individual transferring the property is known as the Donor, while the recipient is referred to as the Donee.
Key Requirements for a Valid Gift
- The donor must be an adult, having reached the age of majority.
- The donor must voluntarily transfer the property, acting of their own free will.
- The transfer must occur without any compensation or expectation of return.
- The donor must formally accept the transfer of the property.
- The property being gifted must be in existence at the time of the transfer.
- The transfer must be free from coercion, fraud, misrepresentation, undue influence, or force.
- The property being transferred must be either movable or immovable.
- Both the Donor and Donee must be alive at the time of the transfer.
Registration Requirements for Gift Transfers
Not all property transfers made as gifts need to be in writing or require registration. However, for an immovable property gift to be valid, it must be executed through a registered document, signed by the donor, and witnessed by two individuals.
If the gift deed is not registered, it does not constitute a valid transfer, and mere possession by the Donee does not confer ownership until the deed is properly registered.
In contrast, movable property transfers through a gift do not require registration. Such transfers are considered complete once the transfer is executed.
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Irrevocability and Revocation of Gift Transfers
In Indian law, gifts are generally irrevocable, meaning once the transfer is completed, it cannot be undone or rescinded.
The donor cannot unilaterally cancel the transfer once the Donee has accepted it. However, both parties may agree to suspend or revoke the gift if certain conditions or events occur, which would constitute a valid revocation by mutual consent.
Additionally, the laws governing voidable contracts also apply to gift deeds. Therefore, if a gift deed is obtained through fraud, coercion, misrepresentation, or any other wrongful means, the donor has the right to declare the gift deed voidable.
Taxation of Gifts under the Income Tax Act
The Gift Tax was reintroduced by the Government in 2004 under the Income Tax Act, making all property transfers through gifts taxable.
According to the current tax regime, the Donee (the recipient of the gift) is responsible for reporting the receipt of gifts to the income tax authorities under the category of “Income from Other Sources,” subject to regular tax rates.
Gifted money received in cash, bank transfer, or cheque, without any consideration, is also subject to tax. Additionally, property such as shares, bonds, jewellery, or artwork, received at a value below the fair market value, will be taxable.
Here’s a brief overview of the tax implications:
Without Consideration:
If movable or immovable property is gifted without any consideration, the entire fair market value of the property will be taxed in the hands of the recipient, provided the value exceeds Rs. 50,000.
If the property’s value is less than Rs. 50,000, no tax is applicable. For immovable property, the value is determined based on the stamp duty value as per the local stamp duty rates.
For Inadequate Consideration:
If the actual consideration of immovable property is less than the stamp duty value, and the difference exceeds Rs. 50,000, the balance amount will be taxable under “Income from Other Sources.” Similarly, for movable property sold below fair market value by more than Rs. 50,000, the differential amount will be taxable.
The stamp duty applicable on gift deeds varies by state. Generally, the stamp duty for movable property is fixed, while for immovable property, it is a percentage of the property’s market value.
Exemptions from Gift Tax
Certain transactions are exempt from taxation under the current tax regime. These include:
Gifts from Relatives:
Any gift of movable or immovable property received from a relative, including parents, spouse, siblings, or any direct ascendant or descendant of the donor or donee, is exempt from tax, regardless of the property’s value.
Gifts Received for Marriage:
Gifts received for the marriage of an individual from any person are fully exempt from tax, except for cash gifts exceeding Rs. 2,00,000.
Gifts in Contemplation of Death or Inheritance:
Gifts given in contemplation of the death of the Donor or Donee, or those received under a will or as part of inheritance, are also exempt from tax.
Property from Local Authorities or Trusts:
Property received from a local authority (such as a Panchayat, Municipality, or Municipal Committee) or from a trust or institution is non-taxable.
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