“Gift”:- is a 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. 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.
Use of Section 56(2) of the Income Tax Act, 1961 is an opportunity to grab for every taxpayer to avail tax benefits where any gift or transfer of property is to be effected between the family members or relatives. Gifting provisions in the Income Tax Law prescribe for the creation of a gift deed for gifting of immovable property. Being the sole document to prove the transfer of ownership of property without consideration, a gift deed becomes a fate decider for both the recipient and the giver of property for the imposition of any tax avoidance penalty in case any provision of Income Tax is violated.
Real estate transactions are always in a line of scrutiny for the tax department. While it has been also observed that most defaults in the real estate sector happen where properties are transferred as a gift. There are some essentials lookouts before confirming the transfer of ownership of any property under a gift agreement which are stated below.
The legality of Property being subjected to Gift
Section 122 of the Transfer of Property Act 1882, specifies the transfer of property under an agreement of social consent (gift). It requires preparation of a gift deed by the donor (giver) of the property which is a necessity for the transfer of ownership if the property is given without any consideration.
Gift of property through a gift deed can only be considered if it is voluntarily given without any consideration and both the donor and the donee (recipient of property) provide their free consent for the acceptance of the transfer.
To propose it as a legitimate transaction under the Income-tax Act and Transfer of Property Act, a gift of property should be done
- By receiving approval from an authorized Sub Registrar.
- By getting a gift deed registered under Section 17 of the Registration Act, 1908 and Section 123 of the Transfer of Property Act.
Note: No property gift shall be valid, if the gift deed is not approved and registered by the registrar.
Forming a Gift Deed
Gift deed is inclusive of all clauses and conditions specific to the property transaction which will be given as gift just like a sale agreement. Preparation of a gift deed requires knowledge of real estate rules and all other laws applicable on property transactions. It is recommended to take help of any legal expert for provisioning of a gift deed before committing any transfer of property without consideration.
Gift deed should be specific in all terms and should provide details of:
- The person in whose name the property is to be transferred.
- The registrar and authorities approving the gift deed.
- The donor
- Witnesses confirming the transfer of property through gift provisions.
- Other conditions or clauses specified by the donor.
- Requisite gift deed stamp duty must be paid
A gift deed can be prepared by the person being the legal owner of the property or can be made by any legal guardian of a minor on his behalf.
Essentials of valid gift:
- The gift is transfer inter vivos (between living persons) of any movable or immovable property.
- The gift must be made voluntarily by the donor.
- The gift must not behold any consideration.
- The gift must be made by the donor to the donee.
- The gift of immovable property must be registered and the movable property can be made valid by delivery of possession or registered deed.
- The gift must be accepted by the donee and the acceptance must be during the lifetime of the donee and the acceptance must be given while the donee was still capable of giving.
- Any acceptance after the lifetime of the donee is void.
Step by Step Process for Gifting of Property
Gifting of property can be initiated just like it is done in a contract of sale. The procedural way to do it is:-
- Offer and acceptance: For gifting of property, the legal owner should receive consent of the other person in whose name the property is to be gifted. If the donor fails to accept the gift, the gift deed will become invalid.
- Drafting of gift deed: With ascent of the donee, the donor proceeds for the preparation of a gift deed, where the donor willingly puts a declaration for transfer of property in name of the donee without exchange of any money or consideration.
- Registration of gift deed: With preparation of the gift deed, it is important that it has to be registered/ recorder with the Registrar or the state authority, approving the property transaction as per Section 123 of the Transfer of Properties Act. The gift deed should be enclosed with a valuation report from an approved valuer, and with a No Objection Certificate (NOC) from the state authorities confirming free lein/ charge on the property.
- Possession of property to be given to the recipient: The donor is required to give the possession to the donee of the property, just after the property deed is registered.
FAQ on Property Gifts
Q1. Can a property gift be conditional?
Yes, it depends upon the will of the donor.
Q2. Is there any difference between gift deed and a will?
In a Gift deed, acceptance is required and it cannot be revoked once made. While in case of a will, no acceptance is required and it can be revoked during the lifetime of the creator of the will.
Want to gift a new flat to your family member?
Know what all tax provisions would be applicable on you.
Email us at email@example.com
Also Read: Gifts to and from HUF