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Mahavir is concerned about an ongoing property dispute in the neighbourhood. He fears that a similar conflict might arise among his sons regarding the property. He owns two houses that he wants to give to his sons so that there are no disputes. A friend has advised him to create a Gift Deed. Let’s learn what a Gift Deed is and how it can help in reducing property disputes.

A Gift Deed is a legal document that allows a person to willingly and happily transfer their property to another person as a gift. It does not involve any financial transactions. With a Gift Deed, both movable and immovable properties can be given as gifts. Just like Mahavir, many people use Gift Deeds to gift properties such as houses and land to others.
Mentally and legally competent individuals can create a Gift Deed. The person giving the gift is referred to as the “donor,” and the recipient is known as the “donee.” All essential information about the donor and donee, such as their names, addresses, relationships, and signatures, must be included in the Gift Deed. The deed should also contain details about the property being gifted, the purpose of the gift, and the acceptance of the property by the donee.

Under Section 17 of the Registration Act, 1908, and Section 123 of the Transfer of Property Act, 1882, a Gift Deed must be registered at the local sub-registrar office. Registration involves the payment of a registration fee. If the deed is not registered, it may be considered invalid. In cases involving properties such as houses or land, the donor is also required to pay stamp duty, which varies from state to state.

Recently, in Uttar Pradesh, stamp duty on property transfers through Gift Deeds within family members like sons, daughters, parents, spouses, etc, has been reduced by 5,000 rupees. In a Gift Deed, the signatures of two witnesses are also typically required.

After the registration of a Gift Deed, the property is immediately transferred, meaning that all rights to the property are transferred to the donee. It’s important to note that the gift should be accepted by the donee while the donor is still alive. If this doesn’t happen, the gift may not be considered valid. Gift Deeds can help reduce family disputes related to inherited property that may arise among legal heirs after a person’s passing.

Now, let’s understand when taxes are not applicable on gifts. Generally, if an individual receives gifts exceeding Rs. 50,000 in a financial year, they are required to pay taxes on the amount received. The tax liability falls on the recipient of the gift. However, under income tax laws, gifts received from ‘relatives’ are exempt from tax, regardless of the amount. The definition of relatives includes spouses, siblings, parents, grandparents, and other specified relations. In this case, Mahavir’s sons would not have to pay any tax on the gift received from their father.

Now, let’s discuss when taxes are applicable on property received through a gift. If Mahavir’s sons decide to sell the property received as a gift, they may be liable to pay Capital Gains Tax. The calculation of the holding period will begin from the day when the actual owner, Mahavir, purchased the property. If the holding period exceeds 24 months, it will be considered a long-term capital gain, and a 20% tax will apply to the profit. If the holding period is less than 24 months, it will be considered a short-term capital gain, and the profit will be added to the sons’ income, subject to tax based on their income slab.

Like Mahavir, you may have questions about whether a Gift Deed can be canceled. Typically, a Gift Deed cannot be canceled or revoked once it has been executed. However, if the recipient of the gift obtained the gift by fraud, the matter can be taken to civil court to nullify the Gift Deed. In December 2022, the Supreme Court had emphasized during a hearing that in cases where parents gift their property to their children in exchange for care in old age, the Gift Deed should include a clause stating that the gift can be revoked if the care is not provided. In situations where elderly parents are neglected by their children in old age, the parents also have the right to approach the tribunal court under the Maintenance and Welfare of Parents and Senior Citizens Act, 2007.