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"
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