In legal terms, a gift is a transfer made between the donor (the one making the gift) to the donee (the one receiving the gift) of any immovable or movable property, without any cost or consideration, for love and affection, and on gratuitous basis.
People often contemplate presenting a valuable and/or meaningful gift in their lifetime to their loved ones, like a relative or another special person. While this is a popular option and sounds like a neat idea, it merits a deeper discussion than what people typically engage in, especially since gifts are given during the donor’s lifetime. There are primarily three disadvantages to gifting an asset, as opposed to including the moveable or immovable property in a Will.
Stamp Duty & Registration Costs Are High
A gift of immovable property (eg land, house) must be made through a gift deed, which should be stamped and registered. Stamp duty differs from state to state, but is typically in the region of 5-6% of the market value of the property. There are some states where the rate is lower or higher, and some with specific exemptions for gifting between relatives, but in most cases you will end up paying prohibitive stamp duty on the gift.
Registration fees are also considerable, although capped in some cases. Not only is it another expense, it is also a hassle because both parties have to be present before the district sub-registrar. If a document is not adequately stamped and / or registered, then it is not admissible as evidence in court.
Gifts Can Be Taxable
If the donor and donee are not related to one another, then the gift is taxable in the hands of the donee (assuming it exceeds Rs 50,000). Here, ‘related’ does not carry the meaning it typically does; instead, there is a specific set of people who are considered to be related, and mostly within direct bloodline. For eg, cousins are not considered to be relatives for tax purposes. If taxable, the rate of tax will depend on the tax slab the donee normally falls under and the amount that is taxable will depend on the nature of the gift (whether it is money, immovable property, or something else, like shares). So, if the recipient is a high-income individual, this can become a costly affair.
Loss Of Control Over The Asset In One’s Lifetime
Perhaps the most important factor to consider here is that once the donor makes a gift, the property is out of their hands. This means a total lack of control once the gift is made. It’s important to remember that the gift cannot be revoked (or taken back). There are many instances we have seen parents gift their house to their child, who now refuses to maintain them. In fact, the case of Vijaypat Singhania, the former chairman of the Raymond Group is a high-profile case of a gift gone wrong, and then bitterly regretted by the father.
A Will is a formal document that does not need to be registered or stamped, so you incur no extra cost while making it. Every transfer under a Will is tax-free. And since the Will does not take effect until demise, the testator has complete authority to control the property in their lifetime – in fact, if the testator believes that the individual to whom he envisaged giving the property does not deserve or need it, for any reason whatsoever, then the testator has full rights to change the Will, as many times as desired.
If a gift is still a good idea for you, it's a good practice to pass on only a small percentage of your assets as gifts, perhaps on the occurrence of certain events like weddings or births, while you pass on the bulk of your asset base through a Will.
