This article is written by Ansari Qamar Zarfishan, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.
Gifting is a way of expressing our love to someone whom we care about. We gift people on many occasions like marriage, anniversary, birthdays, etc. or even before death. These gifts could be in any form either monetary, any goods or property. To transfer a gift there are certain procedures and legal implications. In this article we will discuss Gift Deed, what constitutes a gift, what is the procedure to register a gift deed, suspension or revocation of gift deeds and various taxation regimes of gift deeds in different countries.
What is a gift deed
A Gift Deed is a registered document that clearly states about the transfer of property made between the parties and the kind of property that is transferred. Section 122 of the Transfer of Property Act, 1882, defines ‘Gift’ as “transfer of certain existing moveable and immoveable property made voluntarily and without consideration, by one person called the ‘donor’, to another, called the ‘donee’, and accepted by or on behalf of the donee”. ‘Donor’ means the person who is transferring the gift and the ‘Donee’ means the person to whom the gift is being transferred.
Requisites of a gift deed
A Gift Deed in order to be valid must have the following requisites:
- There must be a gratuitous transfer of ownership i.e. the gift should be a voluntarily transferred,
- The ownership of the property must be relating to the existing property,
- There should not be any consideration for such transfer,
- The donor should be a competent person, and
- The transfer must be accepted by the donee.
Suspension or revocation of gift deed
A gift deed may be suspended or revoked in the following events:
- Upon the occurrence of conditions mutually agreed upon between the parties. Where the transfer is being made upon fulfilment of certain conditions that are mutually agreed between the parties then, in such case the conditions should be clearly stated in the gift deed. If the donee does not fulfil such conditions then the gift will not be transferred.
- Where the transfer was not made voluntarily, the gift may be revoked by the donor.
- The transfer is made for any financial transaction.
- If the donee does not accept the gift, during the lifetime of the donor, then in such case the gift will be suspended.
Registration of a gift deed
According to Section 123 of the Transfer of Property Act, a gift deed should mandatorily be registered in order to be a valid document. Therefore, Section 17 of Registration Act, 1908, states that gifts should be registered with the sub-registrar in order to be enforceable by law and should be witnessed by at least two witnesses.
How to register a gift deed
Following are the steps involved in the registration of a gift deed according to the Registration Act of 1908:
- Evaluation of property being gifted by an approved valuation expert.
- The Gift deed will be signed in the presence of the 2 witnesses by the donor and the donee.
- The signed document should be submitted to the sub-registrar.
- Engaging a lawyer to calculate the registration charges involved such as stamp duty and other charges.
- Pay the assigned fees.
- Attest the Deed.
What documents are required
- An original and true copy of the certificate.
- 2 passport size photographs of all parties and witnesses.
- Photo identity proof (Voter Id, PAN card and Passport) of all parties and witnesses.
- Proof of the land register card.
- Proof of municipal tax bill.
- Signature of all the parties and witnesses.
Can a gift deed be cancelled
No, if the Gift Deed has been registered and accepted by the donee, it cannot be cancelled or revoked without the consent of the donee. The donor has no right over the property. However, the donee has the option to revoke his or her interest in the property and cancel the gift deed.
Having said about the details of the gift deed and how it can be registered, let us now look into the taxation regime of the Gift Deed in different countries. We will be discussing Inda, United Kingdom and Canada taxation regime.
In India, Gift Deed can be in the form of:
Cash: Where the amount of cash received as a gift deed by a person exceeds Rs. 50,000, then the entire amount is taxable.
Moveable property: Gift Deed for the moveable property could be without consideration or for inadequate consideration. a) Where a person receives any moveable property without consideration as a gift, and the aggregate fair market value of which exceeds Rs.50,000, then the entire aggregate fair market value of such property would be taxable. b) Where a person receives any immovable property as a gift, for a consideration which is less than aggregate fair market value but exceeds Rs. 50,000, then the differential amount (consideration-aggregate fair market value) would be taxable.
Immovable Property: Gift Deed for an immovable property can also be without consideration or for inadequate consideration. a) where a person receives any immovable property without consideration as a gift, and the stamp duty of such gift exceeds Rs. 50,000, then the stamp duty value of such property would be taxed. b) Where a person receives any immovable property for consideration as a gift, and the stamp duty of such gift is more than the consideration amount, then the differential amount of whichever is higher of the following amounts would be taxable:
- amount of Rs. 50,000;
- an amount equal to 10% of the consideration.
(stamp duty- Rs.50,000/10% consideration)
Gifts made under the following circumstances are fully exempted under Section 56 (2)(vii) of the Income Tax Act:
Any sum of money or property received from any of the following people shall not be chargeable to tax:
- From a relative
(‘relatives’ means, –
(i) in case of individual would mean:
- a) spouse of the individual,
- b) brother or sister of the individual,
- c) brother or sister of the spouse of the individual,
d)brother or sister of either of the parents of the individual,
- e) any lineal ascendant or descendant of the individual,
- f) any lineal ascendant or descendant of the spouse of the individual,
- g) spouse of the person referred to in (b) to (f) and
(ii) in case of a Hindu undivided family, any member thereof;
- On the occasion of marriage,
- under a will or by inheritance,
- in contemplation of death of payer or donor, from any local authority,
- from any fund or foundation or trust, or educational institution or university, hospital, or other medical institution,
- from an individual by a trust created or established solely for the benefit of relative of the individual, or
- any compensation or other payment, due to or received by any person, in connection with the termination of his employment or the modification of the terms and conditions relating thereto.
- By away of transaction not regarded as transfer under section 47 (i), (iv), (v), (via), (viaa), (vib).
In the UK, if a person gifts more than £325,000 to another person during seven years before his death, that person will be charged with Inheritance Tax for such gift.
A gift can be:
i) anything that has a value (such as money, property, possessions) or
ii) a loss in value when something is transferred is less than it’s worth whose value is more than £325,000, then the difference in the value will be counted as a gift.
When a person dies in less than 3 years, his estate is charged with Inheritance Tax (IHT) of 40%, if the current value of the property is above £325,000. This tax rate slides from 32% to 0% as the number of years increases from 3 to 7 years before death.
Any gifts made to a spouse or civil partner will not be taxed.
When a person receives a gift or inheritance of any amount from another person (except from an employer) will not be taxed.
However, where any transfer of property without consideration is made with the intention of gifting to another person, and the person receives any advantage from such transfer of property, is considered as a gift under Income Tax Act, provided that the advantage received from the gift does not exceed 80% of the fair market value of the transferred property. The person will be liable to pay tax on such advantage.
Renikuntla Rajamma (D) By Lr vs. K. Sarwanamma (2014)
In this case, the Plaintiff had appealed for revocation of gift deed on the ground that the donor had reserved the right to enjoy the benefit for herself during her lifetime as being invalid and void ab initio.
The court had dismissed the appeal stating that the donee had accepted the gift and the transfer of title in favour of the donee had taken place, so the right to use the property during the lifetime of the donor does not affect the validity or title of ownership of gift deed.
In order to be valid and enforceable by law, the gift should be a voluntary transfer of property from one person to another, without any consideration, the person making such transfer should be a competent person, the ownership should relate to the existing property, it should not be a future transfer of property and the person to whom the gift is made should accept the gift during the lifetime of the donor. Acceptance of the gift is a very essential part of the gift. If the donor dies before the acceptance of the gift the gift will become void. Also, last but not the least, registration is necessary for a gift of immovable property to be valid and competent. Thus, to conclude, the gift once registered cannot be revoked or suspended except by mutual consent or by rescissions as contracts.
- https://www.incometaxindia.gov.in/_layouts/15/dit/pages/viewer.aspx?path=/docum ents/left%2520menu/ind-income-from-other-sou rces.htm&isdlg=1&path =/d oc ume n s/left%2520menu/ind-income-from-other-sources.htm&isdlg=1
- https://www.gov.uk/inheritance-tax/gifts#:~:text=The%207%20year%20 rule, k nown %20as%20’taper%20relief’.&text=Example%20Sally%20died%20on%201,civil%20partnership%20when%20she%20died
- https://www.canada.ca/en/revenue-agency/services/forms-publications/publicati on s/ p 113/p113-gifts-income-tax.html
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