Gift Deeds in India

A deed of gift carries great significance in the legal structure of India and is an epitome of the cultural, historical, and religious essence of the subcontinent. Any paper or document that helps in transferring any property or asset, willingly from one person-the donor-to another-the donee-without monetary consideration, though it may also be at no cost-does not escape being called a gift deed. Gifts can be 'tangible assets' - like land and houses or buildings; and 'intangible assets' - which are cash, jewelry and stocks etc. Gift Law in India the Transfer of Property Act, 1882 is the primary source of law regarding the transfer of property in India, and the requirements and procedures required for the making of a gift.

This article will particularly discuss the legal specifications for Gift Deeds, integrating considerations with what is required in Gift Deeds, their respective clauses, and the tax implications. It reflects how the Gift Deed fulfills not only a social and moral need to vest the loving responsibility but also satisfies a legal need in regard to accountability.

History of Gifts in Ancient India

In Indian tradition, the word "gift" assumes the maximum importance. Historically, giving was not just a transfer of property but also accompanied by connotations of a holy effort with social, spiritual, and moral duties. Sacred texts such as Vedas, Upanishads, and Dharmashastras talk of "Dana" or 'Gift' in Sanskrit, and its role in creating interpersonal relations and earning merit or punya and performing societal responsibilities is highlighted.

• Religious Significance: In Hindu nomenclature, an act of gift-giving is itself religious. The Sanskrit term Dana includes an earlier ritualistic phase when the act of giving was believed to be a religious merit. Through giving, one would purify both himself and the recipient. Such sacred forms of Dana comprised offerings to Brahmins; it included land and other material possessions. There are many types of gifts that are described with moral outcome, underlining the fact that a gift given in charity is spiritually rewarded. At the same time, the teaching of Buddhist and Jainism accepts the positive aspect of almsgiving because it has been emphasized that dana is one of the cornerstones for lay person to gain religious merit.

• Social and Legal Dimensions: Gifting was an act which had a tremendous social importance in the earlier times. Agrahara or Brahmadeya, they said, were grants of land given to Brahmins or places of worship on copper plates, with rights of possession alongside certain immunities from revenue. They had been a tool of royal patronage that strengthened political bonds as well as helped propagate religion practices. Moreover, gifts to the family, especially on the occasion of marriages—dowries or Stridhan—played a quite considerable role in establishing social order and family inheritance.

From religious scriptures to old customs, gifting is an integral part of the Indian social system that carries legal, economic, and also spiritual importance. Over centuries, these cultural mores evolved into a codified legal system.

Evolution of Gift Law in India

Pre-Colonial Period
The law relating to gifts in pre-colonial India was mainly governed by customary laws. Hindu and Islamic laws had different schemes relating to the transfer of gifts. Under Hindu law (covers Sikhs, Buddhists, Jains), gifts of immovable property were sacred, requiring rituals such as Mantra and Sankalpa for a valid gift. Islamic law treated Hiba which means the voluntary transfer of properties from one person to another without consideration as an important aspect of personal law, with specific rules relating to its execution and validity.

Colonial Codification
The decisive step in codifying the gift law was introduced through the Transfer of Property Act, 1882. This enactment provided an exhaustive code concerning the transfer of property, including gifts. Section 122 of the Act defines a gift as "the transfer of certain existing movable or immovable 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."

Laws governing Gift Deed
Gift deeds are governed by certain key legal principles and statutes. In India, the key laws and regulations applicable to gift deeds are:

• Transfer of Property Act, 1882: This Act governs the transfer of property by gift.

• Indian Registration Act, 1908: This Act mandates that a gift deed involving immovable property must be registered with the relevant sub-registrar to be valid.

• Indian Stamp Act, 1899: This Act requires that gift deeds be stamped according to the value of the property being gifted. Stamp duty rates vary by state.

• Income Tax Act, 1961: This Act has implications for the taxation of gifts.

• Hindu Succession Act, 1956: This Act may apply if the donor is a Hindu, and the gift is made within the framework of Hindu personal laws.

• Muslim Personal Law: For Muslims, the principles of gift deeds are governed by Sharia law, which emphasizes the concept of Hiba (gift) and its conditions.

Key Conditions for a Valid Gift

To ensure that the gift is legally valid, the following conditions must be met:

• Donor Must Be a Major: The Donor must be at least 18 years of age and must be capable of transferring property.

• Free Will and Voluntary Consent: It has to be voluntary, free from pressure or intimidation, deception, or any form of compulsion.

• No Consideration: Donations have to be passed from one party to the other without any form of consideration for the good.

• Acceptance by the Donee: This must be so at the time of the gift and where the Donor and the Donee are both alive. A gift can only be considered to the extent that a person receives it and accepts it so that he or she can be bound by it.

• Property Must Exist: This property should still be ‘in existence at the date of the gift’ according to the current taxation laws. Any future property transfers that are made for an immovable property through Gift Deed are considered void.

• Compliance with Formalities: According to Indian law, if the transfer of immovable property is to be legal and proper, the Gift Deed has to be in writing and must be signed by the Donor and also needs to be attested by two witnesses.

What about Movable Property?

In case of any movable property - be it, cash, jewelry, vehicles, shares, etc.- a written gift deed is not necessary. The transfer of the property is complete as soon as the Donee takes possession of the gifted movable property. However, it is beneficial to have a written deed documenting the transfer of ownership in case if there are any disputes subsequently, even though it is not required by law.

Irrevocable Nature of Gift Deeds

As per the general principles of Indian law regarding Gift Deeds, an essential stipulation is that the Gift Deed is ordinarily irrevocable. Once the Donor transfers ownership of the property and Doneee accepts the property arguably any further interaction and retention of property becomes final, and any further transaction is rendered moot. The previous Donor retains no unilaterally invoked process to revoke a previously gifted gift deed; there is no legal recourse to cancel a gift.

However, the law provides some avenues in exception:

• Mutual Agreement: The Donor and Donee may arrive at mutual agreement on revocation of the Gift Deed, as long as explicit and mutually acceptable terms were followed at gift issuance.

• Fraud, Coercion or Undue Influence: If gift deed was procured by fraudulent means or any other manner of coercion or undue influence, the donor may potentially assert their rights in the court of law against the Gift Deed.

As an example, if Donor was fully taken advantage of, and forced to transfer ownership under duress, then the Donor may wish to assert their rights in the court against the Gift Deed under Indian Contract Act 1872, which covers Voidable Contracts.

Taxation on Gift Deed

Gifts are taxed under Section 56(2)(x) of the Income Tax Act, 1961, which states the tax consequences for the Donor (the person giving the gift) and the Donee (the person receiving the gift), depending on the nature of the assets gifted and the relationship of the parties involved.

Understanding these complex rules is important because gifts may give rise to tax obligations and sometimes a significant tax obligation—all the more so when they involve a qualitative financial investment or a value-laden asset such as immovable property.

Tax Exemptions on Gifts Between Relatives

Pursuant to Section 56(2)(x), any gift made between particular relatives is exempt; this includes all gifts, regardless of value. Meaning, regardless of how large or how valuable the gift is, so long as the transfer is between the family members and relates to their definitions of "relatives" under the Act, the Donee has no tax obligation.

Who Qualifies as a Relative?

The term “relative” is defined under Explanation (e) to Section 56(2)(x) of the Income Tax Act. The following categories of persons are considered relatives for the purpose of gift exemptions:

• Spouse of the individual
• Brother or sister of the spouse
• Brother or sister of either parent (this includes uncles and aunts)
• Brother or sister of the individual
• Any lineal ascendant or descendant (this includes parents, grandparents, children, grandchildren, etc.)
• Spouse of any of the above persons (this includes brother-in-law, sister-in-law, etc.)

Essentially, the gifts exchanged between individuals who identify as the specified relatives will not be subject to taxes regardless of the monetary value involved.

For example:

• A gift of property or cash given by a father to his son or daughter is completely free of tax.
• A gift of an automobile given by a brother to a sister is completely free of tax.

One should know that any exemption from tax is applicable, either in the form of a gift of cash, property, or another category of gift, as long as the Donee is within this group of "relatives."

Gifts from Non-Relatives

For gifts by non-relatives, the laws are slightly different. If the aggregate value of the gift, be it movable or immovable property, exceeds ?50,000 in a year, then the whole of the amount received is considered as income in the hands of the Donee.

As in the case of gifts from relatives, the income earned from gifts is taxed under the head "Income from Other Sources" and taxed at the normal rates of tax based on the income slabs for the Donee.

For instance, if your friend gifts you a sum of ?1,00,000 then the entire sum of ?1,00,000 shall be taxed in the hands of the Donee and not what exceeds ?50,000. Similarly, if a non-relative gifts you jewelry or any other movable property exceeding value of ?75,000 then it is chargeable to tax as it exceeds the threshold of ?50,000.

That is to say, whichever gifts that are received from non-relatives over and above ?50,000 is chargeable to tax and shall be included in the income tax return of the Donee.

Tax on Immovable Property

Gifting immovable property using a gift deed also comes with additional tax consequences pursuant to Section 56(2)(x). If the stamp duty value of the gifted immovable property exceeds ?50,000, the Donee is obligated to pay tax on the entire stamp duty value unless such property is received from a relative.

Tax Implications on Inadequate Consideration

If immovable property is transferred at a price which is lower than its stamp duty value and the difference between the sale price and the stamp duty value is more than ? 50,000 then the difference amount is taxable in the hands of the Donee.

This provision comes into operation where there is transfer of immovable property for inadequate consideration which means that property is transferred for a price which is lower than its market price and the amount so received is included under “Income from Other Sources”.

For instance: if the stamp duty value is ?1,00,00,000 but the Donee has received it for ?40,00,000 then ?60,00,000 will be charged for tax if the transfer is between two non-relatives.

Deduction of Stamp Duty

In relation with the execution of Gift Deed for immovable property, the stamp duty chargeable for the registration of the Gift Deed is relevant. The Stamp duty differs from one state to the other and the Donee is left with the responsibility of paying the Stamp duty in a bid to affect the registration.

For example, in Delhi, the stamp duty rates are specified under Section 33 of the Delhi Stamp Act, 2007 and range between 3% to 6% of the property’s value, depending on the gender of the Donee and the location of the property:

• Male Donee: The amount of 6% of the market value of the property.
• Female Donee: It is calculated at the rate of 4 % of the market value of the property.

It is advisable to seek the services of a lawyer while drafting Gift Deeds especially when dealing with large amounts of money since the tax and registration procedures are tedious. Thus, learning all the aspects of gift taxation will help avoid additional taxes and make the right choice.

Stepwise process to register Gift Deed in India

Step 1: Drafting of the Gift Deed

The draft of the Gift Deed must include the date, place, details of the donor and donee, property description, voluntariness along with the details of the witness and signed thereafter.

Step 2: Stamp Duty on Gift Deed

A stamp paper, the value of which will depend upon the location and the market value of the property should be annexed with the gift deed.

Step 3: Executing the Gift Deed

The donor and the donee, along with two witnesses, shall sign the gift deed in each other’s presence to make it legally binding.

Step 4: Visit to the Sub-Registrar's Office

The Gift deed is thereafter submitted to the Sub-Registrar’s office along with supporting documents such as ID proofs, property proof, photos, payment receipts, etc. The sub-registrar verifies the details, takes biometric data, and ensures compliance with all conditions.

Step 5: Account Registration Process

The registration fees is paid which is typically 1% of the property value. Once verified, the sub-registrar will put his mark on the Gift Deed, completing the registration.

Step 6: Collection of Registered Gift Deed

Within a period of 1-2 week the gift deed can be collected or a certified copy can be requested from the Office of the Sub-Registrar.

Step 7: Property Mutation

Finally, an application to the local authority to update the property records with the new ownership is submitted and the property title transfers completely.

Conclusion

In the culture of India, a Gift Deed is a masterpiece of donation, legal analysis, and mutual dependence. Transcending from the ancient Dana to modern legal formalities prescribed under Transfer of Property Act,1882 it stands as an institution that is not only committed to the past but to the spirit of giving and receiving within the legal framework of the contemporary society.

Gift deeds which have so many restrictions and conditions to be fulfilled as well as tax implications are good examples of the interplay between personal intention and legal formalities. The need to register and the tax system has shifted the emphasis on the need to undertake elaborate planning and the need for compliance. Gifts given between relatives are exempted from tax while gifts received from non-relatives or where the asset being gifted is an immovable property attracts a huge tax implication.

In other words, Gift Deed is a realization of love, responsibility and legal transfer of the property. It follows the emotional feel of the act but the strong framework of the law that guarantees that such acts of giving are done, protected and most importantly are just.