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Monday, September 23, 2013

What is a Gift Deed

When it comes to transferring property from one owner to another, a sales deed may not always be the right instrument, especially if you want to pass it on to relatives. This is also a natural phenomenon as the property changes hand from one generation to the next. In such cases, instruments like a gift deed or relinquishment deed can come to your rescue. However, blindly choosing either can lead to problems. It is better to understand these instruments and then take informed decisions.

What is a Gift Deed?
This document allows you to gift your assets or transfer ownership without any exchange of money. A deed which is intended to gift an immovable property or relinquish one’s rights in an immovable property. It is a compulsorily registrable document as per the provisions of the Registration Act and thus the same will be required to be registered with the sub-registrar of assurances. Thus, as per the provisions of the Registration Act, an unregistered instrument does not affect any immovable property comprised therein.

What all needs to be taken care of while preparing a Gift Deed?
To gift immovable property, you have to:
  • Draft the document on a stamp paper
  • Have it attested by two witnesses
  • Register it. 
Key Provisions of Law 
  • Registering a gift deed with the sub-registrar of assurances is mandatory as per Section 17 of the Registration Act, 1908, failing which the transfer will be invalid. 
  • Gift of the property has to be done only voluntarily,  without being subjected to any kind of pressure.
  • Besides, such a transfer is irrevocable. Once the property is gifted, it belongs to the beneficiary and you cannot reverse the transfer or even ask for monetary compensation.
  • Transfer of ownership has to be without consideration i.e. without any exchange of money if it is to be considered as a "gift" deed.
  • The gift deed is said to be complete only once the immovable property is "gifted" by the donor and "accepted" by the donee. There cannot be a gift without a giving and taking. The giving and taking are two simultaneous and reciprocal acts that constitute a gift. In order to constitute a valid gift, a basic requirement is acceptance. There is no specified mode for acceptance. A transaction of gift in order to be complete must be accepted by the donee during the lifetime of the donor.
  • You cannot gift a property that's held jointly.

Is there a time frame for registration?
With regard to registering the said affidavit, there is a time frame within which one can register a document (the maximum time being eight months). 

Recommendations while executing a Gift Deed 
  • Try and obtain an affidavit from other relatives (brothers / sisters etc..) stating that they have no objection with the said release/gift.
  • The witness of the gift deed can be any two of the three brothers so as to avoid any challenge to the gift deed at any point in time by them.

Registration Charges
Stamp duty must be paid on the gift deed and the same must be registered.. The registration charges payable on a gift deed differs from state to state. In certain states, it is a percentage with a cap and in other states it is an amount with no cap. It would be advisable for you to check with a local lawyer as to what the registration fee would be on the gift deed in your state.

Is Gift Deed applicable for movable property also? 
A Gift Deed is advisable even if it involves transfer of movable property like jewellery, shares etc. However, if you want to gift movable property, registration is not compulsory. At the same time, a mere entry in an account book is not sufficient to establish a transfer. Apart from physically handing over the property, you need to back it with a gift deed. 

The process is slightly different if you are gifting company shares or stocks. You will have to fill out the share transfer form and submit it to the company or registrar, and the transfer agent of the firm. Once again, get a gift deed drawn and executed to complete the transfer, but the document need not be registered.

Tax Implications in a Gift Deed
The biggest benefit is that there is no tax implication if you are gifting property to certain relatives. However, you still have to pay stamp duty, which can vary from 1-8% for immovable property, depending on the state in which the transfer takes place. If you are gifting property to a non-relative, the stamp duty would be higher at 5-11%. You have to pay this duty even in the case of movable property. Expect to shell out 2-8% in case of relatives, and 3-8% for non-relatives. For physical shares, the stamp duty is 0.25%, but if these are in the demat form, you don't have to pay.

Can a Gift Deed be Revoked or Challenged?
Though a gift deed cannot be revoked, it can be challenged in court, coercion and fraud being the most common grounds. So, if you have been tricked into gifting property, you can take the matter to court and have the transfer reversed. It can also be challenged on the grounds that the donor was not of sound mind or a minor. You can never have a challenge-free gift deed, but consult a lawyer while drafting it so that the chances of it being challenged are minimum.

What is Relinquishment deed
This document is quite different from a gift deed, though the legal implications are the same. You can use this instrument if you want to transfer your rights in a particular property to another co-owner. Such a transfer is also irrevocable even if it is without any exchange of money. As with all documents related to the transfer of immovable property, a relinquishment deed needs to be signed by both parties and registered.
The stamp duty is similar to that for a gift deed. However there is no discount for relatives, nor are there any tax benefits. Also, both stamp duty and tax will be applicable only on the portion of the property that you relinquish, not on its total value. You can also use this deed to transfer movable property without registration, but it is typically used for immovable property.


Manoj Arora
Lead a Financially Free Life !!