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April 17, 2013

Taxability of Gift

What is a gift?

Section 122 of TP Act defines gift as a transfer of certain moveable or immovable property made by a person called donor to another person called donee. Transfer of property in gifts must be made voluntarily without any consideration by the donor and accepted by donee during the life time of the donor.  For a gift to be valid both donor and donee must have capacity to contract. A gift can be made to a minor although he can not enter into a contract but it has to be accepted by a guardian on behalf of minor.

The essentials of a valid gift can be summarized as follows:

a) There must be a transfer of property either movable or immovable by donor to donee.

b) Donee must accept the gift during the life time of the donor to give validity to the gift. Similarly if the donee dies before acceptance, the gift is void.

c) It must be a voluntary act without any consideration and not by any court order or settlement.

d) Gift of movable property can be effected by a simple delivery while gift of immovable properly must be made by a registered instrument in due compliance of Indian stamp Act and Registration Act .The gift deed must be signed by the donor and accepted by donee in the presence of at least  two witnesses.

e) Gift of future property is void as identifiable property does not exist.

f) Gift given to several persons will be valid provided it is accepted by all. If it is not accepted any one person amongst the group, then gift of such portion which reflects interest of that person in that property will be void.
Can a Gift be revoked?

As already stated, gift is a voluntary transfer of property and without consideration. As such it is normally not revoked. However if it is agreed between the donor and the donee about revocation subject to happening of an event, it can be revoked just like a contract. Such revocation must be subject to happening of a specified event which can not be influenced by the donor, other wise it will not be in the nature of a gift. For e.g, If  a donor gives Rs.10 lakhs and reserves a right to take back Rs.1 lakh and it is accepted by the donor then the gift of Rs.1 lakh is void while the gift of 9 lakhs is valid.

What are the formalities for registration of gift deed?

As per Section 17(a) and section 28 of Registration Act, 1908 instruments involving gift of immovable properties must be compulsorily registered. While registering the gift deed the following points must be kept in mind.

1. Deed must be executed on a non judicial stamp paper of requisite value applicable in the state where the  deed is executed and the property is situate

2. Stamp duty at the applicable rate must be paid. In some states the rate of stamp duty varies for gifts between near relatives and gifts to third parties i.e., other than near relatives. In some states lesser stamp duty is fixed for gift deed amongst the near relatives. While in the case of gifts to third parties fixed percentage of market vale is payable as stamp duty.

3. Following documents must be presented to the registration authority in whose jurisdiction the immovable property  is situated:-

a. Copy of Gift-deed executed by both donor and donee.

b. Photographs of donor and donee PAN numbers of donor and donee

c. Submit a declaration as to the particulars of immovable property and its present market value

d. Record of rights/Title deeds which show the prima facie ownership of the donor.

e. Map of agricultural land or other land and buildings,

f.  Affidavit stating that Registration of this document does not violate the notifications issued under Section 22A of the Registration Act, 1908.

However it is recommended to get gift of movable properties registered as well to establish the identity and intention. 

What precautions are to be taken for availing benefit under Income Tax Act? 

Gift deed with full details of property gifted must be executed to establish the bonafides of it. Gifts are generally taxed in the hands of the recipient(individual or HUF) unless they are specifically exempt under the Income Tax Act. Gifts

1) Received from certain relatives (The list includes   Parents, Parents siblings and their spouse, Siblings, Spouse of siblings, Daughter and son, Spouse of daughter and son, Spouse, Spouse’s parents, Spouse‘s siblings and their respective spouse in the case of an individual) are not taxable.

2) Besides this, the following amounts are exempt from tax u/s 56

a.  Gifts received  under   a will  or as inheritance

b.  Gifts received at the time of wedding

If the gifts do not fall in the above category and the amount received is more than Rupees   50, 000/- in a year then it is taxable as income from other sources in the hands of the recipient.

Is there any format for gift deed?    

There is no prescribed format. But the essentials of valid gift must be reflected in the format, namely the names of donor and donee, properties gifted, signatures of donor, acceptance of gift by donee in the presence of two witnesses. A simple format is suggested below.

KNOW ALL MEN BY THESE PRESENTS that I,__________ S/o _________________resident of _________________, gift  voluntarily, the following properties  to Mr.________ /Mrs____________/trust /company/ hereinafter referred to as "the donee") absolutely for his/her /its sole use and benefit  forever.

I further declare that *donee is related  to me as  _____________ 

i)  Market value of the property is Rs._______ and stamp duty paid is Rs.___
ii) the said gift has been accepted by the donee

Description of property
Amount in Rs.
Movable properties xxxxx

Immovable property situated at _________ purchased from xxxxx previous seller/ inherited from _____xxxx
Current market value
* Applicable if donee is related

IN WITNESS WHEREOF, I have executed this deed this __ day of  ____, 2013.

(Signature of donor)
I/We ___________, accept the above gift.

Signature of Donee 
Witness no.1 _______Witness no.2___________

This deed of gift is made on this 24th Day of October 2007 at Bangalore.
By Smt. ______________ aged about 74 years permanently residing at ____________________(‘Donor’)
In favour of
Sri__________S/o _____________ aged about 25 years permanently residing at ___________ (‘Donee’)

1. That this day I _________ ‘the donor’ has gifted a sum of Rs.2,00,000.00 (Rupees Two lakhs only) to ‘Donee’ hereinabove by way of cash as gift.
2. That the said gift was made by me out of my self acquired and self earned income / assets and none of my successors / heirs shall ever dispute or call in question the said gift made by me to the said _________.
3. That the said gift was made by me unconditionally, without any expectation, whatsoever, in return from the said __________.
4. That I shall have no right, title, claim, and interest or demand whatsoever on the said gift in future and the said ___________ shall use the gifted amount in the way he thinks fit for.

5. That I ‘the Donor’ shall have no right over the gifted amount. Further, I also declare that the amount gifted and any accretion thereon shall be the individual property of ________.
6. That I ‘the Donor’ declares that I have made this declaration in sound health and perfect mental condition and this gift is an irrevocable gift.
7. In witness where of Donor and Donee has put their signature to the said deed as a token of their acceptance on the day month and year mentioned first above before the attesting witness.


I Sri.___________S/o __________ aged about 25 years permanently residing at ________________ hereby confirm that I have accepted the above gift as stated above.


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