Gift is the gratuitous transfer of certain existing moveable or immoveable property, made voluntarily and without consideration by one person to another person and accepted by or on behalf of the latter. The transfer must be based on free will and not without duress, force or undue influence. The transfer here means any disposition, conveyance, assignment, settlement, delivery, payment or other alienation. The transferor is called ‘donor’ and the transferee is called ‘donee’.
The Transfer of Property Act, 1882 in its Section 122 defines what a gift is. The Section says a gift “is the transfer of certain existing moveable or immoveable property made voluntarily and without consideration, by one person, called the donor, to another, called the donee, and accepted by or on behalf of the donee. Acceptance when to be made.—Such acceptance must be made during the lifetime of the donor and while he is still capable of giving. If the donee dies before acceptance, the gift is void”.
The Transfer of Property Act provides the essential elements of the gift deed as follows:-
· Transfer of property from donor to donee
· No consideration is exchanged
· The acceptance of gift by the donee
The law stipulates that the donor’s decision to give away a gift must be free, voluntary, absolute, and normally unconditional. However, a special purpose gift can have some conditions such as the donee must look after the donor. There should be no exchange of money. The donee must be capable of receiving gift. To make the gift valid, there should be either expressed or implied acceptance by the donee. If not accepted the gift is not a valid gift. The acceptance should take place within the lifetime of the donor. Otherwise gift is void. On acceptance of the gift, the transfer is complete and it cannot be revoked normally.
A gift to an unregistered body is illegal as it has no legal existence and is not capable of holding property.
Registration of Gift Deed
A gift is executed by a legal document called Gift Deed, to be registered under Indian Registration Act 1958 at the respective Sub-Registrar office so as to make such a transfer valid. Registration of gift is mandatory as per Section 123 of the Transfer of Property Act and Section 17 (1)(a)of the Registration Act, 1908. Two witnesses are to sign the gift deed during registration. In case of immovable property once the registration is over the transfer of the title can be made. However, if a gift deed is for dedication of immovable property to God it does not require registration as it constitutes a religious trust which is exempted from registration. A gift made by a deed is complete as soon as it is executed by the donor and is handed over to the donee. The receipt of the instrument by the donee amounts to acceptance of the gift.
Concession in Stamp Duty
Some states offer a concession in stamp duty if the property is gifted to members of the family of the donee. Kerala state provides concession as per Serial No 31 of the Schedule of the Kerala Stamp Act 1959. From 1st April 2018, the stamp value for gift, where it is in favour of father, mother, grandfather, grandmother, husband, wife, son, daughter, brother, sister or grandchildren of a person, is either a minimum of Rs 1000 or 0.25 of the sale value whichever is higher.
What all to be included in a Gift Deed
A gift deed should include:-
· Date and place of execution of the gift deed
· Details of donor, donee and their relationship
· Details of property being gifted
· Signature of donor and donee
· Details of witnesses present while executing the deed and their signatures
A minor cannot be a donor. If the donor is a minor his legal guardian should validate the gift. A minor donor when attains 18 years of age can return the gift to the donee. Gift of a moveable property can be executed by a registered deed or a mere delivery of it. The gift should be a tangible one, but not a future one.
A gift not based on fraud cannot be cancelled unilaterally. But if a clause stipulating certain conditions is included in the gift deed, the transfer of the gift can be revoked on happening of such conditions as per Section 126 of the Transfer of Property Act. Stamp duty and registration fee has to be paid to register a gift deed.
Difference between Gift and Will
Gift is done within the lifetime of the donor whereas Will becomes executable only after the death of the testator. Gift needs registration whereas for Will registration is optional. Will is the legal declaration of the testator’s intention that the declaration must be with respect to his property and the declaration should be effectuated after his death. Any number of Wills can be created by a person during his lifetime and when the subsequent one will come into effect the former ones will automatically become ineffective.
Gift tax in India
A separate Gift Tax Act was introduced in 1958 under Gift Tax Act, 1958 with an objective to impose taxes on giving and receiving gifts under certain specific circumstances. It was later amended in 1987 but discarded in 1998. Later Gift Tax was reintroduced by including it in the Income tax law in 2004.
A Gift is not taxable if it is received by any close relative of the donee as defined in the Section 56 of the Income Tax Act 1961. The income tax law specifies the kind of relatives from whom a donee can receive tax-free gifts. They are:
(a) Spouse of the individual;
(b) Brother or sister of the individual;
(c) Brother or sister of the spouse of the individual;
(d) Brother or sister of either of the parents of the individual;
(e) Any lineal ascendant or descendent of the individual;
(f) Any lineal ascendant or descendent of the spouse of the individual;
(g) Spouse of the persons referred to in (b) to (f).
A gift is not taxable if the aggregate of gift amount does not exceeds Rs 50000/- in a year. If the value of gifts received is more than Rs. 50,000 a year, then such amount is taxed as income of the receiver of the gift as per the Income Tax Act, 1961. However, if the amount of gifts received exceeds Rs. 50,000/- then the entire amount would be added to your income, but not the amount in excess of Rs. 50000. This is applicable to both movable and immovable properties.
The gifts received on the occasion of marriage are however exempted even if they are received from non-relatives.
There is also no tax burden on gifts received as a result of inheritance such as a result of a Will or a Partition Deed. But, the income generated later on from such inherited properties would be taxable.
Gift Tax Rates
In calculating the gift tax, the amount of cash or cheque, value of property as per stamp duty, or estimated value of other assets will be charged as income. The value of gift has to be added under “income from other sources” for the purpose of income tax calculation. This income from gift will be taxed along with one’s total income under the tax slab rates applicable to him in that financial year.
Cancellation of Gift Deed
Before the acceptance of the gift the gift deed can be cancelled by the donor alone. It is almost a unilateral transaction then. But after the acceptance of the gift the right of the donor to cancel the gift ceases to exist as it becomes a bilateral transaction. A gift cannot be revoked by the donor on a plea that the donor has made a mistake. In cancellation of gift deed, the burden to prove that fraud was committed lies on the plaintiff.