Gifting of Property in India

“Gift” is the transfer of property from one person to another, where the transferor gives such property to receiver, willingly, without any compensation/favor in return.

According to Section 122 of the Transfer of Property Act, 1882, you can transfer immovable property through a gift deed. Like a sale deed, a gift deed contains the details of the property, the transferor and the recipient. But unlike a sale deed, it allows one to transfer ownership without any exchange of money.

A gift deed is a legal document that describes voluntary transfer of gift from donor (owner of property) to donee (receiver of gift) without any monetary favor in return. The donor should not be insolvent and should not use this as a tool for evasion of tax and illegal gains.

Registering a gift deed with the sub-registrar is mandatory under the laws in India (Section 17 of the Registration Act, 1908 and Section 123 of the Transfer of Property Act.) If this is not done, the transfer will be invalid. Once a gift deed is registered, only then the change in the title of ownership of property is possible. Also, for the recipient to be able to further transfer the property, a registered gift deed will be required.

WHAT CAN BE GIFTED?

The following conditions should be fulfilled for a property to be a valid gift:

1. It should be movable or immovable property.

2. It must be transferable.

3. It should be an existing property and not a future property.

4. It should be tangible or real.

5. The transferor and the receiver should be alive at the time of the gift.

ESSENTIALS FOR A VALID GIFT DEED

A gift deed should be specific and must also include all the essential elements for the transfer of property of such nature. This is the reason it is advisable to get the document drafted with the help of a lawyer. The following essential things must be fulfilled for a gift deed to be successfully executed:

1. The gift deed should essentially mention the details of the property that is being gifted.

2. Details of the recipient/receiver are also an essential.

3. The deed must be signed by the donor i.e. the person gifting the property.

4. Both the donor and receiver must be present in the office of Registrar.

5. The document must be signed by at least 2 witnesses.

6. The deed needs to be stamped with an appropriate non-judicial stamp, depending upon the value of the property.

WHO CAN MAKE A GIFT DEED?

A person who owns the property can make a gift to another person. An exception to this rule is the case in which either the donor or the donee is a minor. Minors are not eligible to form contracts; therefore, they cannot transfer property as gift. If a donor is a minor, the gift deed is not valid and becomes void.

In case of donee being a minor, a natural guardian can accept a gift on his behalf. The guardian acts as a manager of the gifted property. If the gift is onerous, it cannot be enforced on donee until he/she is a minor. Once the donee is an adult, he must either accept or return the gift.

The guardians who can receive the gift on behalf of the minor or insane persons are:

1. Father

2. Father’s executor

3. Paternal grandfather

4. Paternal grandfather’s executor

PROCEDURE TO GIFT A PROPERTY

The procedure to gift a property can be sub-divided into three steps mentioned below:

1. Drafting the Gift Deed – A gift deed ensures a legal transfer of the gift and should be drafted with the help of a lawyer. It describes what is being transferred, who is transferring the property and to whom. It is a contract between the donor and the donee where the donor is willingly giving his property to donee and he/she is accepts the property. It is essential that a gift must be made by a person voluntarily and not under any compulsion, and without any exchange of money or any other consideration.

2. Acceptance – Acceptance of the gift deed is another important legal requirement and the donee must accept the gift during the lifetime of donor. In case the donee fails to accept the gift, it becomes invalid. The acceptance may be validated by acts of the recipient such as taking possession of the property.

3. Registration – As per Section 123 of the Transfer of Property Act, a gift of immovable property cannot pass any title to the donee unless it is registered. It is mandatory to get it attested by two witnesses during and post registration.

REGISTERING A GIFT DEED

As stated earlier, a gift deed, transferring a property from the donor to the donee is required to be registered. This is to be done at the office of the registrar with the help of a lawyer. Registration validates the transfer. The following are some common steps required for the process of registration: 

1. Valuation of gift property by an approved valuation expert.

2. Stamp duty and transfer duty are to be paid – It varies from state to state and according to the type of property. Stamp duty is also lesser for women than for men. The latest rates of stamp duty can be found on the relevant official/government website.

Registration Fee and Stamp Duty for Gift Deed

The stamp duty and the registration fee for the gift deed vary from state to state. In order to calculate the stamp duty and the registration fee, it is advisable to consult a local lawyer. The charges for some major cities are listed below:

New Delhi –
In Delhi, the stamp duty and transfer duty is payable @ 4% if the donee is a woman and @ 6% if the donee is a man. Registration fee is 1% of the total market value of the property plus Rs.100/- pasting.
Bangalore –
In Bangalore, the stamp duty and registration charges depend upon who is gifting the property:

1. If the donee is not a family member, then the stamp duty will be payable @ 5% along with surcharge and cess. The registration fee is 1% of the total market value of the property.

2. If the donee is a family member, then the registration fee will be Rs 1000 and the stamp duty:-

• If the property is situated within within BMRDA/BBMP/ City Corporation limits, the stamp duty will be Rs 5000 along with surcharge and cess.
• If the property is situated within city/town/municipal/council/town panchayat limits, then the stamp duty will be Rs 3000 along with surcharge and cess.
• If the property is situated within the limits other than the places mentioned in (i) and (ii), the stamp duty will be Rs 1000 along with surcharge and cess.

Mumbai –
In Mumbai, the stamp duty and registration fee differ as per the type of the property which is gifted, such as:-

1. In case of agricultural and residential land, the registration fee is Rs 200 and the stamp duty is Rs 100, where 1 % is the LBT of the total market value of the property.

2. In case of any immovable property which is given to a family member, stamp duty is  3% of the market value of the property along with 1% registration fees. If a person other than the family member is giving the property, then in that case the stamp duty will be 5% of the market value of the property along with 1 % registration fees.
Chennai –
The registration fee for the gift deed in Chennai is 1% of the property’s market value and stamp duty for the gift deed is 7% of the market value of the property.
Kolkata –
In Kolkata, the values of the registration fee and the stamp duty differ, based upon who is gifting the property.

1. When the gift deed is made by a family member, the stamp duty is 0.5% of the market value of the property.

2. When gift deed is made by a person other than a family member:

• If the property is situated in the Panchayet Area, then the stamp duty will be 5% of total market value of the property.
• If the property is situated in Municipal Areas, Corporation Areas, then the stamp duty will be 6% of market value of the property.
• If the market value exceeds 40 lakh in both urban and rural areas, then additional stamp duty of 1% will be charged.

This fee can be paid through demand draft, cheque or cash at the office of sub-registrar.

Documents Required for Registration of Gift Deed

Certain documents such as PAN card, Aadhar card, driver’s license, passport, etc. need to be submitted to the Registrar’s office in order to get a gift deed registered.

Duration of the Process of Gift Deed

According to Section 23 of Registration Act, 1908 a gift deed should be presented before the officer within 4 months from the date of its execution. The final registration process takes at least 1- 3 weeks of time period.

TAX PAYABLE ON THE GIFT

Previously, there existed the Gift Tax Act under which a donor had to pay ‘gift tax’ on the amount of gift. However, this Act has been abolished, and from Financial Year 2004-05, a new provision has been inserted in the Income Tax Act, 1961. According to this, if the gift is received in the following situations, it will not be taxable:

• When an individual receives a gift from a relative / blood relative
• When an individual receives a gift from any person on the occasion of that individual’s marriage
• When an individual receives a gift from any person under a will or by way of inheritance When any person receives a gift from an individual in contemplation of death of donor or payer
• When any person receives a gift from any local authority, Panchayat, Municipality, or, from any fund or foundation or university, educational institution or hospital, or from any registered charitable or religious trust, etc.
• When any fund or trust or institution or educational or medical institution receives a gift from any person
• When members of HUF receive a gift from the HUF on the occasion of distribution of capital assets on total or partial partition of an HUF
• When a trust (created solely for the benefit of a relative of the individual), receives a gift from that individual

However, excluding the aforementioned exemptions, certain gifts received by any person from another, attracts gift tax. Mostly, if the aggregate of gifts received exceeds Rs 50,000 in a year, the gift will be taxable as income from another source.

FAQS

1. Who is a donor?

The person making the gift, or the transferor is called the donor.

2. Who is a donee?

The person receiving a gift, or the transferee is called a donee.

3. Is there any income tax liability upon a Hindu Undivided Family (HUF) on a Gift made to the HUF by a member of the HUF?

A Gift made to an HUF by a member of the HUF is exempted from the income tax liability.

4. Is registration of a gift deed mandatory?

Registering a gift deed is mandatory as per Section 17 of the Registration Act, 1908 and as per Section 123 of the Transfer of Property Act. A gift deed would be invalid if not registered.

5. Apart from marriage, is there any other occasion in which gifts will not be charged for tax?

According to the Income Tax Act, 1961, if the gift is received in the following situations (apart from marriage), it will not be taxable:

• When an individual receives a gift from a relative / blood relative
• When an individual receives a gift from any person under a will or by way of inheritance
• When any person receives a gift from an individual in contemplation of death of donor or payer
• When any person receives a gift from any local authority, Panchayat, Municipality, or, from any fund or foundation or university, educational institution or hospital, or from any registered charitable or religious trust, etc.
• When any fund or trust or institution or educational or medical institution receives a gift from any person
• When members of HUF receive a gift from the HUF on the occasion of distribution of capital assets on total or partial partition of an HUF
• When a trust (created solely for the benefit of a relative of the individual), receives a gift from that individual

6. Is revocation of a gift possible?

The deed can be revoked only under following conditions:

• If there is a mutual agreement between the donor and the donee.
• If the property transfer was not accepted by the donee.

7. Can a gift be conditional?

Unless the condition is prohibited under any other law in force, there can be a conditional gift. However, the condition should not be based on the mere will of the donor.

8. What is the difference between gift deed and will?

There are various differences between a gift deed and will such as:

• It is important that the recipient must accept the gift in order to validate the gift deed. However, no such acceptance is required in a will, although a person can relinquish his rights after the execution.
• Gift deed is registered within the lifetime of the donor and if the donor dies before the acceptance of the gift deed, the gift deed becomes void. A will, however, is executed only after the death of the testator.
• A will can always be revoked during the lifetime of the testator, but a gift deed once registered cannot be revoked.