All You Need to Know About Gift Deed

Have you or your loved one ever considered willingly ‘gifting’ a property to someone? While the idea sounds noble, it should be executed with all legalities in mind. This is where the concept of a gift deed comes into play.

A gift deed is a legally-binding document that transfers the ownership of a property or asset from one individual (the donor) to another (the donee) without any monetary obligation. It is usually used to transfer immovable property such as land, building, or house. However, it can also be used for movable property such as jewellery, shares, or vehicles.

But does this not sound similar to a will? No, a gift deed is different from a will, the latter takes effect after the death of the testator, whereas a gift deed takes effect immediately upon its execution. A gift deed is also irrevocable, which means that once the donor transfers the property to the donee, he or she cannot take it back or cancel the deed.

Before deciding on something as critical as gifting a property to someone, it is imperative to understand the concept of a gift deed. This ensures that both the donor and the donee have a legal document to confirm the transfer of property, free of cost, and all associated clauses. Ultimately, a gift deed’s most significant advantage and purpose is to prevent future legal hassles and issues regarding the property in question. 

Let us take a deeper look at gift deeds so as to understand their working and importance better. 

Critical Requirements for a Valid Gift Deed 
A gift deed is usually executed for a movable or immovable property that the donor voluntarily gives out of love, affection, or gratitude. There are some essential requirements for a valid gift deed:

- The donor must be competent to contract, i.e., he or she must be of sound mind, major, and not under undue influence or coercion.
- The donee must be identifiable and capable of accepting the gift. The donee can be an individual, a trust, a society, or a legal entity.
- The subject matter of the gift must be existing and be ascertainable. The donor cannot gift a future property or a contingent interest.
- A gift deed has to be executed voluntarily and without any consideration. The donor must express his or her intention to make a gift and transfer the possession of the property to the donee.
- The gift deed is always drafted in writing and registered under the Registration Act 1908. The property gift deed registration fee and stamp duty on gift deed vary from state to state and depend on the property value. At least two witnesses must also attest to the gift deed.

Ensuring the Legality of a Gift Deed
A gift deed must be valid and enforceable in the eyes of the law. Therefore, it is important to mention some essential clauses in a gift deed to avoid any disputes or challenges in the future. Here are some of the important clauses to be mentioned in a gift deed:

- Description of the property: The gift deed should clearly describe the property that is being gifted, including its location, boundaries, area, and any other identifying features. The gift deed should also mention whether the property is free from any encumbrances, liens, or charges.
- Acceptance of the gift: The gift deed should state that the donee has accepted the gift and has taken possession of the property. The acceptance of the gift can be expressed or implied by the donee's conduct. The process of receiving should be made during the lifetime of the donor.
- Revocation of the gift: The gift deed should specify whether the gift is revocable or irrevocable. A revocable gift can be cancelled by the donor at any time before the acceptance by the donee. An irrevocable gift cannot be cancelled by the donor once it is accepted by the donee.
- Consideration for the gift: The gift deed should indicate that there is no monetary consideration involved in the transfer of the property and that the gift is made out of love, affection, or gratitude. The gift deed should also mention that the donor has not been coerced, induced, or influenced by any person to make the gift.
- Stamp duty and registration: The gift deed should be stamped and registered as per the applicable laws of the state where the property is situated. The stamp duty and registration fees vary from state to state and depend on the property's value. The stamp duty and registration charges are usually borne by the donor.

Gift Deeds: Major Advantages and Disadvantages

Advantages

- It helps in avoiding disputes and litigation among family members or heirs over the property.
- It helps in saving tax as there is no capital gains tax on gifts made to relatives (as defined under the Income Tax Act, 1961). However, suppose the donee sells the gifted property within three years of receiving it. In that case, he or she will be liable to pay capital gains tax on the difference between the sale price and the cost of acquisition (which is zero in the case of gifts).
- It helps create goodwill and express love and affection for the donee.

Disadvantages

- It is irrevocable and cannot be cancelled or modified once executed.
- It may attract income tax liability for the donee if the value of the gifted property exceeds Rs. 50,000 and the donee is not a relative of the donor (as defined under the Income Tax Act, 1961).
- It may affect the eligibility of the donor for availing certain benefits or schemes such as pension, subsidy, or reservation.

Final Thoughts

It goes without saying that before executing a gift deed, one should consult a legal expert and weigh all the pros and cons of making a gift. A gift deed is a simple and effective way of transferring property or assets to someone you care about. Nevertheless, it also involves legal and financial implications that should not be overlooked. 
Ultimately, a gift deed aims to ensure a smooth and hassle-free transfer of property. Thus, it should be drafted with care and precision and witnessed by two independent witnesses.