Introduction: Gifts are generally given by donors to show their love and affection. Sometimes gifts are used as a tool for tax planning. An attempt is made in this article to cover the essentials of a valid gift as per the provisions of the Transfer of Property Act, 1882, Indian stamp Act, Registration Act and its implications under Income tax Act,1961 in the hands of recipient.
What is a gift?
The word gift sounds very nice to every one and the meaning of it is well understood by all. But let us examine it legally. Section 122 to 127 of Transfer of Property Act,1882 (for brevity herein after referred as TP Act) deal with gifts
Section 122 of TP Act defines gift as a transfer of certain moveable or immovable property made by a person called donor to another person called donee. Transfer of property in gifts must be made voluntarily without any consideration by the donor and accepted by donee during the life time of the donor. For a gift to be valid both donor and donee must have capacity to contract. A gift can be made to a minor although he can not enter into a contract but it has to be accepted by a guardian on behalf of minor.
The essentials of a valid gift can be summarized as follows:
a) There must be a transfer of property either movable or immovable by donor to donee.
b) Donee must accept the gift during the life time of the donor to give validity to the gift. Similarly if the donee dies before acceptance, the gift is void.
c) It must be a voluntary act without any consideration and not by any court order or settlement.
d) Gift of movable property can be effected by a simple delivery while gift of immovable properly must be made by a registered instrument in due compliance of Indian stamp Act and Registration Act .The gift deed must be signed by the donor and accepted by donee in the presence of at least two witnesses.
e) Gift of future property is void as identifiable property does not exist.
f) Gift given to several persons will be valid provided it is accepted by all. If it is not accepted any one person amongst the group, then gift of such portion which reflects interest of that person in that property will be void.
Can a Gift be revoked?
As already stated, gift is a voluntary transfer of property and without consideration. As such it is normally not revoked. However if it is agreed between the donor and the donee about revocation subject to happening of an event, it can be revoked just like a contract. Such revocation must be subject to happening of a specified event which can not be influenced by the donor, other wise it will not be in the nature of a gift. For e.g, If a donor gives Rs.10 lakhs and reserves a right to take back Rs.1 lakh and it is accepted by the donor then the gift of Rs.1 lakh is void while the gift of 9 lakhs is valid.
What is an onerous Gift?
When a gift is made subject to conditions or obligations to be fulfilled by the recipient, it is called an onerous gift. If donee desires to take benefit of the gift, he has to discharge the obligation attached to the gift. It is entirely up to the donee to accept or reject a gift but he can not accept only benefit and reject obligation attached to it
Onerous gift amongst other things involving separate transfers
Where gift of several things is made by two or more separate and unconnected or independent transfers to the same donee, the donee is at liberty to accept some and reject those which are onerous.
For e.g, A donor gifts a property with litigation/liabilities attached to it and also a cash gift separately. Donee can accept cash gift and reject the gift of house which is an onerous gift as these are unconnected and independent gifts.
Onerous gift amongst others made by a single transfer
There may be a case where by a single transfer, gift of several things is made. Out of several things gifted, one may be burdened with obligation while others are not burdened. Donee has to accept all things covered by single transfer and has no choice to accept only that part which has no obligation. For e.g, Donor gifts all his shares which consist of shares of blue chip companies and partly paid up shares of companies under liquidation. There may be a liability on the partly paid up shares as a contributory. Donee has to accept both or reject the shares of both companies since the gift is made by a single transfer. When a donee takes gift of property with all liabilities attached to it, he is called a universal donee as per Section 127 of T P Act.
Is there any format for gift deed?
There is no prescribed format. But the essentials of valid gift must be reflected in the format, namely the names of donor and donee, properties gifted, signatures of donor, acceptance of gift by donee in the presence of two witnesses. A simple format is suggested below.
KNOW ALL MEN BY THESE PRESENTS that I,__________ S/o _________________resident of _________________, gift voluntarily, the following properties to Mr.________ /Mrs____________/trust /company/ hereinafter referred to as "the donee") absolutely for his/her /its sole use and benefit forever.
I further declare that *donee is related to me as _____________
i) Market value of the property is Rs._______ and stamp duty paid is Rs.___
ii) the said gift has been accepted by the donee
Description of property
Amount in Rs.
Movable properties xxxxx
Immovable property situated at _________ purchased from xxxxx previous seller/ inherited from _____xxxx
Current market value
* Applicable if donee is related
IN WITNESS WHEREOF, I have executed this deed this __ day of ____, 2013.
(Signature of donor)
I/We ___________, accept the above gift.
Signature of Donee
Witness no.1 _______Witness no.2___________
What are the formalities for registration of gift deed?
As per Section 17(a) and section 28 of Registration Act, 1908 instruments involving gift of immovable properties must be compulsorily registered. While registering the gift deed the following points must be kept in mind.
1. Deed must be executed on a non judicial stamp paper of requisite value applicable in the state where the deed is executed and the property is situate
2. Stamp duty at the applicable rate must be paid. In some states the rate of stamp duty varies for gifts between near relatives and gifts to third parties i.e., other than near relatives. In some states lesser stamp duty is fixed for gift deed amongst the near relatives. While in the case of gifts to third parties fixed percentage of market vale is payable as stamp duty.
3. Following documents must be presented to the registration authority in whose jurisdiction the immovable property is situated:-
a. Copy of Gift-deed executed by both donor and donee.
b. Photographs of donor and donee PAN numbers of donor and donee
c. Submit a declaration as to the particulars of immovable property and its present market value
d. Record of rights/Title deeds which show the prima facie ownership of the donor.
e. Map of agricultural land or other land and buildings,
f. Affidavit stating that Registration of this document does not violate the notifications issued under Section 22A of the Registration Act, 1908.
What precautions are to be taken for availing benefit under Income Tax Act? Gift deed with full details of property gifted must be executed to establish the bonafides of it. Gifts are generally taxed in the hands of the recipient(individual or HUF) unless they are specifically exempt under the Income Tax Act. Gifts received from certain relatives are not taxable. Besides this, the following amounts are exempt from tax u/s 56
g. Gifts received under a will or as inheritance
h. Gifts received at the time of wedding
If the gifts do not fall in the above category and the amount received is more than Rupees 50, 000/- in a year then it is taxable as income from other sources in the hands of the recipient. If immovable property is received without consideration and stamp duty value exceeds Rs.50,000/- then the stamp duty value will be added to the income of the recipient. W.e.f 01.10.2009 Several non cash gift items such as jewellery, artworks such as drawings ,paintings, sculptures are brought within the scope of Gift(bullion w.e.f 01.06.2010 )and have to be valued at fair market value(FMV) through valuation officer) for assessing the tax liability. If the aggregate FMV exceeds Rs,50,000/- the entire FMV is taxable in the hands of the recipient. If listed companies shares are gifted they are valued as per prices quoted on stock exchange. Unlisted shares are however valued as pet net asset value method. These valuation aspects are not very easy to understand by a layman and it is better to seek the advice of expert to know the tax implication of high value gifts.
Let us now turn our focus to the list of relatives defined for exemption from tax. The list includes Parents, Parents siblings and their spouse, Siblings, Spouse of siblings, Daughter and son, Spouse of daughter and son, Spouse, Spouse’s parents, Spouse‘s siblings and their respective spouse in the case of an individual.
Conclusion: Giving gifts is a noble act. Receiving/accepting gifts gives both the donor and donee a pleasant feeling. But the non compliance of the essential requirements of Transfer of Property Act, Indian stamp Act and Registration Act may spoil the effectiveness or validity of the Gifts in the eyes of law. Both donor and donee must comply with the legal requirements to make the gift, a pleasant one.
G S Rao,
DGM(Legal),OCL India Limited
Tags: Gift deed, Gift tax
Tags Income Tax