Real Estate Basics : What is Gift Deed ?

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INTRODUCTION 

Gifting is a selfless act of giving. It is a form of expression of love and affection towards close family members and friends. However seen through the lens of law, gift is a transaction between two living persons entailing various rights and liabilities provided under several legal statutes such as the Indian Contract Act, Transfer of property Act, Registration Act, Stamp Act, Income Tax act etc. Let us go through some of these provisions to get a broad overview and a general idea about the laws relating to Gift in India.

GIFT

Section 122 of the Transfer of Property Act, 1882 defines Gift as “the transfer of certain existing movable or immovable property made voluntarily and without consideration, by one person called the donor, to another, called donee, and accepted by or on behalf of the done.”

The donor must be a competent person i.e. he must have capacity as well as right to make the gift. Thus, at the time of gift, the donor must be of the age of majority and must have a sound mind. Also it is essential that the donor must have ownership rights in the property at the time of making gift.

On the other hand, Donee need not be a person competent to enter into a contract. However, Donee must not be a fictitious person. It must be natural person or juristic person (eg. Company, institution etc.). A Donee may be a minor or an insane person. Gift can also be made in favour of a child in mother’s womb, provided that it is lawfully accepted by a competent person on his (her) behalf.

GIFT DEED

Gift deed is a contract between donor and the donee which defines simultaneous and reciprocal act of giving and taking. A deed of gift is drafted with the help of a lawyer and it contains a detailed description of the property being transferred, the person making the gift, the person to whom it is transferred and conditions (if any) subject to which the gift has to take effect.

The purpose served by a Gift deed is that it records the terms and conditions on which gift is made. It may also be used as an evidence of ownership of the property by the donee. It is compulsory to draft gift deed  in certain cases under the law.

ESSENTIAL ELEMENTS OF A VALID GIFT:

In order that the gift is construed valid in the eyes of law, following conditions must be satisfied:

Ø  There must be transfer of ownership- the owner must intent to pass on all the rights and liabilities in respect of property to donee.

Ø  The property must be in existence at the time of making gift. The property to be transferred may either be movable or immovable, tangible or intangible property. However it must be transferable within the meaning of section 5 of the Transfer of Property Act, 1882. However a Gift of future property is void.

Ø  No consideration – the ownership must be transferred without any consideration. The word consideration has the same meaning as given in Section 2 (d) of the Indian Contract Act, 1872. It must be valued in terms of money or property. Property transferred in consideration of love and affection is transfer without consideration, hence a gift.

Ø  Voluntary transfer – the donor must make the gift voluntarily through the exercise of his own free will and his consent must be a free consent Consent is regarded as free when it is given without any force, coercion, fraud, misrepresentation or undue influence.

Ø  Acceptance of gift - Gift must be accepted by the donee. Such acceptance must be made during the lifetime of the donor and while the donor is still capable of giving. If the donee dies before acceptance, the gift is void in the eyes of law. The acceptance may either be express or implied. Acceptance can be inferred from the conduct of the donee and the surrounding circumstances.

Ø  Registration- In case of immovable property, Registration of Gift Deed is necessary for the gift to be valid in the eyes of law. In case of movable property, gift can be made either by delivery of the movable property or through a gift deed. However, Registration of gift deed is compulsory for it to be admissible as evidence in the court of law.

EFFECT OF GIFT:

The effect of a valid Gift is that from the moment gift comes into effect, the donee acquires the title of the property along with all the rights and liabilities attached to it and the donee becomes absolute owner of the property.

MODE OF MAKING GIFT:

Section 123 of the Transfer of Property Act, 1882 regulates the mode of making gift.

In case of immovable property whatever may be the value of such property, transfer must be effected by (i)registered document, (ii)signed by or on behalf of the donor and (iii) attested by at least two witness.

In case of gift of movable property, transfer may be affected either by (i)registered document signed as aforesaid or (ii) by delivery of the property. Such delivery may be made in the same way as goods sold may be delivered.

As per section 17(1)(a) of Registration Act, 1908 registration of gift deed is compulsory. But the religious trust is exempted from registration of gift deed thus, if gift deed is made for dedication of immovable property to God it does not required to be registered as it constitutes religious trust. Unregistered gift deed is not acceptable as evidence in court of law. Two witnesses are required to sign gift deed before registrar. In case of immovable property once registration is done transfer of title can be made.

At the time of registration of the gift deed, the Registrar ensures affixation of proper stamp duty on the gift deed/document.

STAMP DUTY PAYABLE ON GIFT DEED:

The amount of stamp duty and registration charges payable, with respect to gift deed, are generally the same as in the case of regular sale. However, if the gift deed is executed between some specified close relatives some states provide concession.

In Maharashtra at present Rs 200/- stamp duty is chargeable on gift made by following five categories of persons, Husband to wife, wife to husband, Parents to their children, and by Grandparents to the grandson, and to a deceased son's daughter in law. For all other blood relations, stamp duty is payable @ 3% on Gift Deed in Mumbai. In rest of Maharashtra additional duty @ 1% is payable depending upon Municipal Corporation.

TAX LIABILITY IN CASE OF GIFT:

Normally the donor is not liable to pay any tax on the property he has given up. However, in some cases, the donee is taxed under the head of ‘Income from other sources’ under the Income Tax Act, 1961.

Gifts are not taxed if they are received on occasion of marriage, by way of will or inheritance, or from any local authority, fund or foundation registered under section 12AA of the Income Tax Act, 1961.

The Income Tax Laws also give a favourable treatment to gifts between two close relatives. The list of close relatives includes parents, spouse, siblings, siblings of the spouse, linear ascendants and descendants of the person and his/her spouse. The list also includes spouse of the above mentioned persons.

Apart from this,the value of all the gifts received by a person during a year is fully exempt, as long as the total of such gifts does not exceed Rs 50,000 in a year. If the value of all the gifts taken together exceeds Rs 50,000, then, the aggregate of the gifts received become taxable.

CONDITIONAL GIFT:

Conditional gift can be defines as a gift whereby the donor attaches a condition, fulfilment of which is a necessary for the gift to take effect. Conditional gift becomes complete only with the fulfilment of the condition. The condition may be condition precedent (something to be done before gift is complete) or condition subsequent (something on happening of which gift gets revoked but it does not depend upon sole will of the donor).Under section 126 of the Transfer of Property Act, 1882,gift can be revoked by mutual contract between the donor and donee on happening of some event not depended only on the will of the donor.

The Donor has right to cancel the gift if the donee fails to fulfil the condition attached to it. If due to some unforeseen event, the condition becomes impossible to be fulfilled, the gift fails. This proposition is based on doctrine of ‘frustration of contract’ regulated by section 56 of the Indian Contract Act, 1872. For instance, consider that A promised to gift a house to B on the condition that, B marries C. If B marries D or if C dies before the marriage, the gift fails.

Same is the case if the donee breaches the condition on the basis of which the donor has agreed to gift property to donee. For instance, A gift house to B on the condition that B does not leave India before 3 years from the date of transfer of house. Thus if B leaves India before prescribed period, the gift will be revoked and the title to the house will revert back to A.

TYPES OF GIFTS:

Some special category of Gifts provided under the Transfer of Property Act, 1882 is as follows:

§  Onerous Gift (Section 127)

As per section 127 of TOPA when donor makes gift by single transfer whereby he transfers several things and one of which is burdened with an obligation, the donee can accept either whole gift subject to obligation or nothing at all.

For instance, A makes a transfer under single gift deed of a house with market value of Rs. 25 lakh along with a car, but the house is subject to mortgage of Rs. 5 lakh. B has choice to accept both house and car along with the burden of mortgage on house or he can refuse to accept the gift, but in no case he can accept the car and reject house under the gift deed.

When onerous gift is made to person disqualified to contract (minor or unsound person), such person is not liable to the obligation attached to the gift but when he becomes competent to contract and he becomes aware about the obligation and keeps the property, he then becomes liable to the obligation attached to the gift. 

§  Universal gift ( section 128)

Universal gift means a gift of donor’s whole property (movable or immovable) along with all the dues and liabilities of the donor at the time of gift. Provided that, such dues and liabilities should extent to the property transferred. In such case the donor is called as ‘universal donor’ and donee is called as ‘universal donee’. For becoming universal donee there has to be transfer of whole property i.e. movable or immovable property.

 It is pertinent to note that, under universal gift the liabilities of donor are also transferred along with the property at the time of gift which extents only upto property transferred by the gift. Thus in case the liabilities exceeds the value of the properties, the donee is responsible for the liabilities upto the value of the property transferred as gift.

REVOCATION OF GIFT:

Once a gift is made, it cannot be revoked. But if the donee does not accept the gift it can be cancelled. If the condition prescribed in the gift deed is not fulfilled, the gift is not complete and hence, the donee does not acquire any right under the gift deed. In such case the donor has a right to cancel the gift.

CHALLENGE TO GIFT:

Once gift is made it cannot be cancelled by the donor. But there is a exception to this proposition. The donor has a right to challenge the gift on the ground that, the gift made is affected by fraud, undue influence, coercion, misrepresentation or by mistake of fact. As similar to any other contract,a gift can be challenged being voidable on the above said grounds under section 19 of the Indian Contract Act,1872 subject to the law of limitation.

GIFT AND WILL COMPARED:

Both Gift and Will are legal documents by which property is transferred to other without any consideration. But these documents differ from each other on various accounts. Some of the points of differences between these two documents are as follows:

GIFT	WILL
Transfer between living persons by act of parties (transfer inter vivos).	Transfer by operation of law as transferor is not living person.
Gift takes effect immediately on execution of gift deed.	Will takes effect after death of testator.
Gift is regulated by the Transfer of Property Act, 1882.	Will is regulated by the Indian Succession Act, 1925.

IMPORTANT OBSERVATIONS OF SUPREME COURT:

Some of the recent observations of Supreme court in relation to Gift Deed are as follows:

Ø  S.SAROJINI AMMA V/S VELAYUDHAN PILLAI SREEKUMARCIVIL APPEAL NO. 10785 OF 2018-

In this case the question before the Supreme court was that whether a document styled as gift but executed for some consideration which was partly paid and partly promised be treated as gift or formal document. Another question before the Supreme Court was thatwhether a gift deed reserving the right of the donor to keep possession and right of enjoyment and enforceable after the death of the executant is a gift or a will.

FACTS OF CASE-

The appellant was old lady who executed gift deed in favour of her nephew i.e. the respondent on the condition that he will look after the appellant and her husband who died in year 2015 and also for some consideration. It was also clearly stated in the gift deed that the gift will come into effect after the death of the appellant and her husband. But later the appellant executed deed of cancellation for cancelling the gift deed on which there was dispute between the appellant and the respondent.

OBSERVATION OF COURT:

While answering both the questions the Supreme Court made following observations,  

§    A conditional gift with no recital of acceptance and no evidence in proof of acceptance, where possession remains with the donor as long as he is alive, does not become complete during lifetime of the donor when a gift is incomplete and title remains with the donor the deed of gift might be cancelled. Conditional gift only becomes complete on compliance of the conditions in the deed.

§   There is no provision in law that ownership in property cannot be gifted without transfer of possession of such property. However, the conditions precedent of a gift as defined in Section 122 of the Transfer of Property Act must be satisfied. A gift is transfer of property without consideration. Moreover, a conditional gift only becomes complete on compliance of the conditions in the deed.

§  In the instant case, admittedly, the deed of transfer was executed for consideration and was in any case conditional subject to the condition that the donee would look after the petitioner and her husband and subject to the condition that the gift would take effect after the death of the donor. We are thus constrained to hold that there was no completed gift of the property in question by the appellant to the respondent and the appellant was within her right in cancelling the deed. The judgment and order of the High Court cannot, therefore, be sustained.

Thus, it was held by the Supreme Court that even though the deed of transfer was executed for consideration it was executed on condition that the gift will take effect only after the death of the donor. Thus, there was not complete transfer of property in favour of the donee as the condition was not fulfilled and the donor has right to cancel the gift before its completion.

Ø  JAGDISH CHANDER VS. SATISH CHANDER AND ORS. CIVIL APPEAL NO. 2361 OF 2019-

In this case question before Hon’ble Supreme Court was that whether gift deed is valid or not as it was contested that gift was given in consideration of Rs.5,000/- which makes gift invalid as per section 122 of the Transfer of Property Act, 1882.

OBSERVATION OF COURT:

It was observed by the Supreme Court that, “it is true that if the gift is evidenced by consideration, same cannot be valid,  within the meaning of Section 122 of the T.P. Act. But it is clear from the document itself that no consideration is passed on as per the registered gift deed. Mentioning of Rs.5,000/- in the first page, for the purpose of valuation, cannot be said to be a consideration received by the donor for executing the gift deed."

"...In absence of challenge to the gift deed, it is not open to record any findings on the validity of the gift. The High Court also committed error in relying on the mutation proceeding, which itself is based on the registered gift deed. Further, the High Court fell in error in re-appreciating the evidence on record to come to a different conclusion than the findings recorded by the Trial Court, in exercise of power under Section 100 of the Code of Civil Procedure."

Thus, Supreme Court held that, there was no consideration paid in the gift deed and the amount of Rs. 5,000/- mentioned on the first page of the Gift deed was for the purpose of valuation of the property to calculate the stamp duty and registration charges payable at the time of registration of the gift deed. Therefore, the gift deed is valid and not hit by section 122 of TOPA.

CONCLUSION:

At the end of this article it can be summed up by saying that gift is an act by which you can transfer property to you loved once without taking anything in return provided that you follow the rules and regulations put forth by law. There are many factors which we have to take into consideration before making transfer by gift to another person.

"This article is authored by Adv. Runali Savardekar (Advocate Bombay High Court), you can reach out to her at savardekarrunali10@gmail.com"

"Special thanks to Ms. Shivangi Vyas for her contribution as an Editor for this article"