In India, it is a common practice to gift your loved ones certain types of assets, especially during important milestones like marriage and the birth of a child. While giving away your entire estate while you're alive might not be recommended, selectively gifting portions of it is possible through a legal instrument known as a Gift Deed.

From understanding the core concept of what a gift deed is, to paying stamp duty, many people have questions regarding this legal procedure. Here, we aim to address the commonly asked queries concerning Gift Deeds.

Questions Answered In This Article

1. What is a Gift Deed?
2. Do I have to pay stamp duty on Gift Deed?
3. Does stamp duty on a Gift Deed depend on who the donee is?
4. What are the features or characteristics of Gift Deeds?
5. Gift Deed or Will: Which is the right choice?
6. Who needs a Gift Deed?
7. Is Gift Deed Registration Required?

1. What Is A Gift Deed?

A Deed of Gift, also known as a Gift Deed, is a legal document used in India to transfer ownership of certain assets or properties from one person, known as the donor, to another person, known as the donee, within one's lifetime and without any exchange of money. It is a common way to gift property and other assets to family members, friends, or other individuals, and carries legal significance under the Transfer of Property Act, 1882, and the Income Tax Act, 1961.

A Gift Deed serves several important purposes:

Transfer of Ownership

One of the primary purposes of a Gift Deed is to transfer ownership of property or assets. This can include real estate, movable property, stocks, bonds, or any other valuable items.

Estate Planning

Individuals often use a Gift Deed as part of their estate planning strategy. By transferring assets during their lifetime, donors can plan their estate taxation and ensure that their assets are distributed equitably.

Charitable Donations

Non-profit organisations and charitable causes often receive donations through a Gift Deed. Donors can use this legal instrument to support causes close to their hearts.

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2. Do I Have To Pay Stamp Duty On Gift Deed?

A Gift Deed in India comes under the Transfer of Property Act, 1882. Additionally, the Registration Act, 1908 becomes applicable, and the stamp laws of the relevant state play a crucial role.

Under this Transfer of Property Act, the transfer of immovable property as a gift must be made through a registered Gift Deed, which should be undertaken at a local sub-registrar after paying the applicable stamp duty and other registration process charges. The stamp duty rates differ from state to state and are also dependent on the relationship between the parties.

For example, gifts made between parents, siblings, children, etc typically attract minimal stamp duty. These relations are specified in the stamp duty payment laws of the given state. However, where gifting of immovable property, ie residential or agricultural, property is done to a person who does not fall within the definition of the relatives specified under the given stamp duty laws, a higher stamp duty typically in the region of 2-10% of the market value of the property is payable.

Registration fees will also be payable for Gift Deed registration.

As far as gifting of movable property is concerned, it is not mandatory to register the Gift Deed. Once the movable asset is delivered to and accepted by the donee, the gifting is considered to be complete.

3. Does Gift Deed Stamp Duty Depend On Who The Donee Is?

As seen above, Gift Deeds governing immovable property attract a stamp duty. There are two factors on the basis of which the stamp duty value is calculated. Firstly, the location of the property, ie where the immovable property is situated. Secondly, the relationship between the donor and the donee. A blood relation has to pay stamp duty too, but it is lower compared to someone who is not related. So yes, stamp duty on the property will also largely depend on who the donee is.

4. What Are The Features Or Characteristics Of Gift Deeds?

While the basic structure of a Gift Deed remains the same, there are variations to accommodate different situations and preferences. Here are some common types of Gift Deeds.

Absolute Gift Deed

This is the most straightforward type of Gift Deed, where the donor transfers complete ownership of the property to the donee without any conditions or restrictions.

Conditional Gift Deed

In a conditional Gift Deed, certain conditions are attached to the transfer of the property. The donee only acquires ownership if they fulfill the specified conditions. If the conditions are not met, such gift deed may be revoked.

Gift Deed With Reservation Of Right

In this type of Gift Deed, the donor transfers the property to the donee but reserves certain rights for themselves. These rights could include the right to reside in the property for a specified period or receive income generated by the property.

Gift Deed to Minors

When the donee is a minor, the Gift Deed is structured to accommodate their age. Usually, a legal guardian is appointed to manage the gifts received on behalf of the minor until they reach the age of majority.

Gift Deed with Maintenance Clause

This type of Gift Deed may include a written clause specifying that the donor, typically if they are parents, will continue to receive maintenance or support from the donee after the transfer of the property. In case the donee fails to take care of his parents, the said Gift Deed can be revoked.

Irrevocable Gift Deed

An irrevocable Gift Deed cannot be canceled or revoked by the donor once it is executed. The transfer of ownership is permanent.

Gift Deed of Movable Property

While Gift Deeds are often associated with immovable property like land and buildings, or a simple cash Gift Deed, it can also be used for movable property such as vehicles, jewellery, shares, stocks, other financial instruments, or assets.

5. Gift Deed Or Will: Which Is The Right Choice?

While Gift Deeds and Wills are both legal instruments used for transfer of immoveable property and other assets, they serve different purposes and have distinct characteristics.

Understanding the differences between a Gift Deed and a Will is essential for effective estate planning and asset distribution. Let's explore the key distinctions between these two legal documents.

Gift Deed

A Gift Deed is a legal document that facilitates the transfer of ownership of property or assets from a donor (the giver) to a recipient (the receiver) without any exchange of money during the donor's lifetime.

Here are some important features of a Gift Deed.

Immediate Transfer

A Gift Deed results in an immediate transfer of property ownership. Once executed and registered, the recipient becomes the legal owner of the gifted property or asset.

No Probate

A Gift Deed avoids the Probate process, which means the transfer occurs outside the scope of the deceased's estate and is not subject to probate court.

Tax Implications

Depending on the value of the gift (i.e. over INR 50,000) and the recipient of the gift or donee, local body tax laws, there may be tax implications and usually for for both the donor and the recipient.

Will

A Will, also known as a Last Will and Testament, is a legal document that outlines the distribution of a person's assets after their death. The document only becomes legally valid once signed in the presence of two Witnesses and goes into effect only after their demise. Here are key features of Wills.

Posthumous Distribution

Wills come into effect only after the death of the Testator (the person creating the Will). They dictate how the Testator's assets will be distributed among Beneficiaries.

Revocable

Wills are revocable during the Testator's lifetime, meaning they can be updated or changed as circumstances or preferences evolve.

Probate Process

Wills typically go through the Probate process, during which the court validates the Will and oversees the distribution of assets according to the testator's wishes. In India, Probate is applicable regarding Wills executed in Mumbai, Chennai and Kolkata or if the immovable property is situated in any of these places.

No Immediate Ownership Transfer

Unlike a Gift Deed, a Will does not transfer ownership immediately upon execution. The assets are distributed according to the Will's instructions after the Testator's death.

Tax Implications

Unlike Gift, currently, there are no stamp duty or income tax implications in India on any receipt of assets by way of inheritance (i.e. by way of Will), irrespective of value or location of such asset.

Guardianship Provisions

Wills can also specify Guardianship for minor children and outline other matters, such as funeral arrangements and the appointment of an Executor.

Read more: Executor, Guardian, Witnesses: The Supporting Acts Behind Your Will-Making Story

Choosing Between A Gift Deed And a Will

When considering your estate plan, creating a Will is a fundamental necessity. However, a Gift Deed becomes relevant when the Will alone cannot entirely fulfill your intentions. The key difference to keep in mind is that opting for a Gift Deed means relinquishing control over the designated asset, while a Will allows you to retain ownership and control. For those looking to gift their assets during their lifetime, experts recommend that you exercise caution and reserve gifting for a portion of your assets rather than your entire estate. The decision on which asset to gift should align with individual circumstances and specific objectives. Here are the key considerations to factor in:

• Immediate Transfer: If you want to transfer a particular asset or property immediately while you are still alive, a Gift Deed is the appropriate choice.
• Posthumous Distribution: If you want to specify how your assets should be distributed after your death and maintain flexibility in changing your decisions, a Will is the preferred option.
• Tax Considerations: Consult with a financial advisor or attorney to understand the tax implications of both options and choose the one that aligns with your financial goals.
• Complex Estate Planning: In cases of complex estates with multiple Beneficiaries and various assets, a combination of a Gift Deed and a Will may be necessary to achieve your estate planning objectives.

Gift Deeds and Wills are distinct legal instruments with different purposes and implications. The choice between the two should be based on your specific goals, assets, and the legal and financial considerations that are relevant to your situation.

As always, consulting with a legal expert is advisable to ensure that your estate planning strategy aligns with your wishes and adheres to all applicable laws.

6. Who Needs A Gift Deed?

A Gift Deed is typically utilised in situations where someone (the donor) wishes to transfer ownership of property or another asset to a person (the donee) without any monetary exchange. Here are some scenarios where a Gift Deed might be useful.

Family Transfers

Parents may use a Gift Deed to transfer property to their children or vice versa. This is a common scenario when parents want to pass on assets to their heirs as a gift during their lifetime itself.

Interfamily Gifts

Gift Deeds are also employed for transfers between people with blood relations, including other family members such as siblings, grandparents and grandchildren.

Estate Planning

Individuals often use Gift Deeds as part of their estate planning strategy. By transferring property as a gift during their lifetime, they may seek to minimise potential inheritance or estate taxes, where applicable. It is important to note here that stamp duty on Gift Deed is still payable.

Gifting Between Friends

In cases where there is a close personal relationship, but no blood relation, individuals might use a Gift Deed to transfer property without the need for a financial transaction.

However, it's crucial to highlight that such gifts (above INR 50,000) will attract the stamp duty and income tax mplications generally could incur higher expenses. Hence, it's highly advisable to seek expert guidance when considering a Gift Deed for such purposes.

Charitable Donations

Individuals or organisations may use a Gift Deed to donate property to charitable institutions. This can be a way to support a good cause while also providing potential tax benefits.

Avoidance of Probate

Some individuals use Gift Deeds as a means to transfer property outside of the probate process. This can be part of a broader strategy to simplify the distribution of assets after the donor's passing.

7. Is Gift Deed Registration Required?

A registered Gift Deed is a requisite only for the transfer of immovable property. Gift Deed registration charges differ from state to state. As previously detailed, the rules governing Property Gift Deeds also vary accordingly. Moreover, it's essential to consider that any property transfer necessitates the payment of stamp duty.