In the realm of estate planning, ensuring the financial well-being of your children is paramount. While Wills and inheritance are traditional methods of asset transfer, a Gift Deed offers a proactive approach to support your children during your lifetime.

By legally transferring assets through a Gift Deed, you can provide immediate assistance, avoid potential disputes, and take advantage of certain tax benefits.

This article delves into the nuances of Gift Deeds in India, highlighting their advantages, legal requirements, and the process involved, ensuring you make informed decisions for your family's future.

Understanding Gift Deeds

What is a Gift Deed?

A Gift Deed is a legal document that facilitates the voluntary transfer of movable or immovable property from one person (the donor) to another (the donee) without any monetary consideration. Governed by the Transfer of Property Act, 1882, a gift deed ensures that the transfer is legally binding and recognised by law.

Key Features

• Voluntary Transfer: The donor willingly transfers ownership without any coercion.
• No Consideration: Unlike sale deeds, Gift Deeds involve no monetary exchange.
• Immediate Effect: Ownership transfers immediately upon execution and registration.
• Irrevocable: Once executed, a Gift Deed cannot be revoked unless specific conditions are met.

Advantages Of Using A Gift Deed

1. Immediate Support to Children

By executing a Gift Deed, you can provide your children with assets when they need them the most, be it for education, marriage, or starting a business. This proactive approach ensures they benefit from your assets during your lifetime.

2. Legal Clarity and Protection

A registered Gift Deed serves as legal proof of the transfer, minimising the chances of future disputes among family members. It clearly outlines the property details, ensuring transparency.

3. Tax Benefits

Under the Income Tax Act, gifts received from specified relatives, including parents, are tax-exempt, regardless of the amount. This means your children won't have to pay tax on the assets received through a Gift Deed.

4. Avoidance of Legal Complications

Transferring property through a Gift Deed can help avoid the lengthy and often contentious process of intestate succession, ensuring a smoother transition of assets.

Legal Framework Governing Gift Deeds In India

Transfer of Property Act, 1882

As per Section 122 of the Act, a gift is defined as the transfer of certain existing movable or immovable property made voluntarily and without consideration by one person to another and accepted by or on behalf of the donee.

Indian Registration Act, 1908

For a gift of immovable property to be legally valid, it must be registered under this Act. Registration provides authenticity and legal recognition to the transaction.

Types Of Properties That Can Be Gifted

1. Immovable Property

Includes:

• Residential or commercial buildings
• Land plots
• Agricultural land

2. Movable Properties

Includes:

• Jewellery
• Vehicles
• Shares and securities
• Bank accounts

Process Of Executing A Gift Deed

1. Drafting the Gift Deed

Engage a legal expert to draft the deed, ensuring it includes:

• Details of the donor and donee
• Complete description of the property
• Declaration of voluntary transfer
• Absence of monetary consideration
• Acceptance clause by the donee

2. Stamp Duty Payment

Pay the applicable stamp duty based on the property value and property location. Stamp duty rates vary across states and may offer concessions for transfers between family members.

3. Registration

Visit the Sub Registrar's Office with:

• The drafted Gift Deed on non-judicial stamp paper
• Identity proofs (eg, PAN card, Aadhaar)
• Property documents
• Two Witnesses with their ID proofs

Upon verification, the deed is registered, making the transfer legally binding.

Tax Implications

Income Tax Act Provisions

Under Section 56(2) of the Income Tax Act:

• Gifts received from specified relatives (including parents) are tax-exempt, regardless of the amount.
• Gifts from non-relatives exceeding ₹50,000 in a financial year are taxable.

Capital Gains Tax

If the recipient sells the gifted property in the future, capital gains tax applies. The cost of acquisition is considered as the original purchase price by the donor.

Precautions & Considerations

1. Inclusion of Revocation Clause

While Gift Deeds are generally irrevocable, including a revocation clause can provide flexibility in specific situations.

2. Clear Property Description

Ensure the property details are described accurately to prevent future disputes.

3. Mutual Agreement

Both the donor and donee should be in mutual agreement, and the donee must accept the gift during the donor's lifetime.

4. Legal Capacity

The donor must be of sound mind and not under undue influence during the execution of the deed.

The Bottom Line: How Yellow Can Help

A Gift Deed stands out as a proactive and legally sound method to support your children during your lifetime.

It not only provides immediate assistance but also ensures clarity, reduces potential disputes, and offers tax benefits.

By understanding the legal requirements and following the proper procedure, you can make informed decisions that secure your family's future.

At Yellow, we can help you with all aspects of estate planning, including Wills, Trusts, Powers of Attorney, Gift Deeds, Legal Heir and Succession Certificates, and Living Wills. We also offer post-demise and asset transfer services. Our team of legal experts has more than 50 years of combined experience.

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