Gift Deed- Implications, Interpretations and Information

Gift deed Information, Implications and Interpretations

Can parents take back the property gifted to their children?

Let’s skip the mystery and come straight to the point! 

The answer is – YES

 Parents can indeed take back the property they have gifted to their children. 

Remember:

  • All Gift transactions come under the purview of the Transfer of Property Act. Under this law, a valid gift once made and accepted, is irrevocable.
  • However, one can challenge a gift deed if any of the elements vitiating the contract is present like undue influence, coercion or fraud. 
  • By its inherent nature, Law is dynamic and changes with change in the social milieu and other politico-cultural factors.

With a rapidly shifting society and apparent differences in the value system in human relationships, the question of parents being able to take back gifted property often arises. 

Also Read: NRIs and commercial property

Family spaces have gradually moved from being Joint Family setups to nuclear ones. Children move out of family environs to build their career and independent lives. 

There is an ethos of continuity, lineage and life security that motivates parents to gift property to their children. Normally one would expect the same to be reciprocated – meaning thereby, that children take care of their parents when the latter reach seniority. Unfortunately, there are increasing cases of children mistreating their parents once the property is transferred in their names.

Also Read: Can NRIs buy property jointly with resident Indian?

Moreover, in India, the governmental support system for the elderly is still not very strong. 

  • Given the frequent cases of the abuse or ill-treatment of the elderly, Indian Law has provided a right to the parents to take back their gifted property from the children.
  • This right has been recognized in the ‘Maintenance and Welfare of Parents and Senior Citizens Act, 2007’.
  • It is social welfare legislation meant for care and well being of the older adults.
  • It protects the rights of the elderly and has made it a legal obligation of the children to look after their parents. 

Section 23 of the Act, as mentioned above, allows the cancellation of a gift deed by the parents. When a gift is made to the legal heir/child by the senior citizen upon a condition that the receiver will take care of the basic needs of the donor, but the receiver fails to fulfil the same; the gift can be cancelled. The condition can be expressed or implied.

Also Read: Saving yourself from fraud while buying or selling a property

If a child fails to fulfil such a condition it would be considered as an exercise of fraud, undue influence or coercion in the gift transaction, depending upon the facts of the case. The donor can challenge the gift deed and seek annulment of the same. 

This provision assists the elderly persons who have made the gift of the property after coming into force of the Maintenance Act and want to cancel the gift deed later.

Parents gift a property to their children with an understanding that the donor (parent) would be taken care of after transfer of the property. But if the donee (child) is not fulfilling his obligation under the contract of the gift, the same can be cancelled.

How to Make Gift Deed in Gujarat?

How to Make Gift Deed in Gujarat Front

An owner of the property can transfer the same in many ways like Will, Gift or Sale.

Among family and friends, the property is usually transferred by way of executing a Gift Deed. 

The process of Gift deed creation is generally the same in all the States of India. There are certain requirements which are specific to each state, e.g. the criteria for imposing Stamp duty varies from State to State. The difference is there in stamp duty, and registration charges as States can charge Stamp duty and registration fees as per their revenue requirement.

For Gift deed in favour of blood relations, most of the States charge nominal Stamp duty and registration fees. In some states, there is a complete waiver also.

Read: Tax for NRIs on gifts of money and property

The process of gift deed creation requires:

  • Drafting of gift deed on stamp paper- In the drafting of Gift deed, the value of stamp paper depends upon the value of the property to be gifted. The gift deed must mention that gift is being made voluntarily and without any consideration. The donor must be solvent.
  • Signature of donor and donee on the deed – signature of the donee on the deed signifies the acceptance of the gift by the done which is necessary to make the gift valid. Acceptance of gift must be made during the lifetime of the donor otherwise the gift is rendered invalid.
  • Attestation by witnesses
  • Payment of stamp duty and registration charges

Under section 17 of the Registration Act 1908, registration of a Gift Deed is compulsory.  The stamp duty and the registration charges payable in each State are different and therefore, it is better to consult a local lawyer for making a gift deed.

Read: How Does Religious Conversion Affect Property Rights?

Moveable property can be gifted without any deed. Delivery and acceptance of the moveable property complete the gift transaction.

In the State of Gujarat:

  • Stamp duty payable is governed by the Bombay Stamp Act, 1958 as applicable to the State of Gujarat.
  • Stamp duty payable is 3.5 % of the market value of the property being gifted.
  • Surcharge @ 1% is also applicable over the stamp duty basic rate
  • Registration charges are paid in addition to the stamp duty.

Stamp duty payable depends upon the value of the property to be gifted. Valuation of property should be carried out by experts in the field to calculate the correct stamp duty.

In the state of Gujarat:

  • Draft models of gift deed are present on the official website, in English as well as the Gujarati language.
  • Property can be registered online also.
  • There is a provision for e-payment of Stamp duty and registration charges.

Since the registration of the deed of immovable property is mandatory, unregistered deed is not recognised in law. Therefore, it is advisable to register it as per the prevalent State Laws. In case, the gift deed of immovable property is not registered, the title does not pass to the donee. For Registration, the Gift deed is presented to the office of the local Sub -Registrar within whose territorial jurisdiction, the property or a portion of the property to be gifted lies.

Important points: In the State of Gujarat –

  • There is a penalty of 200% of the value of the gift deed executed, for evading stamp duty.
  • After GST, there is no impact on stamp duty and registration fees.

 

Tax implications on a gifted property

Tax implications on a gifted property

Gifting a property is a kind gesture, and it is better to be aware of tax implications for gifting a property.

We had a case where Mr Bhushan, an NRI was gifted with land situated in India by his father, a resident Indian. He wanted to know:

  • If a land in India can be gifted by his father who is a resident Indian
  • The legal requirements to complete this gift transaction
  • Tax implications

Our advice and guidance – Parties to a gift deed:

  • Donor (giver)
  • Donne (recipient)

Donor or Donne can be a Resident Indian or an NRI or a PIO.

Which property can be gifted: Any movable or immovable property like –

  • Land /Building
  • House
  • Jewellery
  • Shares and Securities
  • Paintings, Drawings, Sculptures – Any other work of art
  • Archaeological Collections

Agricultural Land, Farmhouse and Plantation Property in India cannot be gifted to NRI.

Legal Requirements for gift deed:

A gift is a voluntary transfer of movable or immovable property without consideration, by a donor to donne which is accepted by the donne during the lifetime of the donor. For a gift deed, we require:

  • Donor – voluntary transfer
  • Donne – acceptance of a gift
  • Property to be gifted in existence
  • Gift deed preparation
  • Registration of gift deed

Tax Implications:

Both Donor and Donne are charged with the payment of tax as per Income Tax Act, 1961, under certain conditions mentioned as below. Tax is levied in the year in which the gift is received.

Tax Implications

  • Any rent received by the Donor on a gifted property is added to his income for tax purposes.
  • For calculating Fair Market Value and Stamp Duty Value, it is better to take advice from a tax consultant

Exemptions from tax in case of Gift:

  • If the aggregate value of the gift is less than Rs 50,000
  • Gift received from the relatives (list of relatives provided in the Income Tax Act) – No tax irrespective of the value of the gift. In the case of Hindu Undivided family, all members are relatives.
  • On Marriage of the recipient
  • Gift received by will or inheritance
  • From local authority
  • From Charitable Trust/Find/Institution as per the provisions of the Act