Gift Deed

Gift tax has been abolished by Finance Act, 1998, with effect from 1st October, 1998 and henceforth no tax liability is involved whenever any person makes a gift either of movable or immovable property irrespective of the value thereof. Earlier provisions under the Gift Tax Act were of very complex nature and one is required to understand those provisions since one cannot say at what point of time the Government may decide to introduce the said Act again, considering the latest amendment which has been brought to Income-tax Act by Finance Act No. 2 of 2004, to section 56 if any sum of money exceeding Twenty Five Thousand Rupees is received by an Individual or Hindu Undivided Family from any person after 1st day of September, 2004 the whole of such sum shall be chargeable to Income Tax as income from other sources. It is true that certain exceptions are made to this provisions, such as money received from relative on the occasion of marriage or money received from relative or received under will and in contemplation of death of the person, such money will not be chargeable to tax as Income — Relatives are also specified in explanation. The explanation added to the said section also clearly defines the term ‘Relative’ and any sum received from the person who falls within the defines of ‘Relative;’ i.e., Individual’s brother or sister or their spouse or lineal ascendant or descendant of such spouse, will not be treated as income from other source.

In the Gift Tax Act, Gift has been defined as transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money’s worth. The definition further states that it includes transfer or conversion of any property referred to in Section 4 deemed to be a gift under that section. Section 4 refers to certain transfers which include the property which is transferred otherwise than for adequate consideration. There are other modes of transfers also referred in the said section. It includes the property which is transferred for consideration but in reality the circumstances of the case show that the same has not been passed or is not intended to be passed. It covers also release, discharge, surrender, forfeiture or abandonment of any debit or any claim. The point to be seen is the definition in the Gift Tax Act, is very wide and tries to bring into its net various kinds of transfers wherein the transfer is made without any consideration.

For the purpose of gift the following ingredients are required to be satisfied. There has to be a transfer; the transfer should be without any consideration or for inadequate consideration; there must be some one to make the gift voluntarily who will be termed as a donor and a person who received it must accept the same. The donor should be a person who is competent to make a gift. A minor or a lunatic is not a competent person to make a gift. The donee or the person to whom the gift is made has an option to accept or repudiate the same. If the donee accepts it, then it becomes a complete transaction. The property donated may be a movable or an immovable property. As far as movable property is concerned the act can be completed by just handing over the possession. As far as immovable property is concerned it requires an execution of document. The document should be signed by the donor as well as the donee and should be attested by at least two witnesses and should be registered. If any of the ingredients as stated above are lacking, the Gift cannot be treated as a valid gift under the law. Delivery of possession is also an essential ingredient of the gift. Once the donee accepts the gift it becomes an irrevocable act. Thereafter it cannot be revoked or suspended. A gift cannot be made if the beneficiary is not in existence. A minor is entitled to receive a gift even though he is barred from making the same as stated above.

As far as registration is concerned in case of an immovable property the registration is a must and also stamp duty is payable on the gift deed. In various states the rate of stamp duty varies. As far as registration is concerned, the same is compulsory under the registration Act as also under the Transfer of Property Act. As regards the gift of a movable property the gift deed can be executed but the same is not compulsory since by merely passing the possession without any consideration the act can be completed. However, from the tax point of views it is always advisable to execute an Agreement.

Sometimes the gift could be also for the specific purpose and can be with certain conditions and in case such conditions are not fulfilled the gift can be revoked. There are lot of case laws on the interpretations of various ingredients as stated above but the purpose of this Note is only to refer to certain essential aspects of a valid Gift.

While drafting Gift Deed care has to be taken to spell out the intentions of the donor in the agreement. The competency of the donor has also to be seen. The acceptance of the donee must also be referred. If both the parties ... Donor and the Donee ... execute a document that will clarify the situation in a better way and the transaction could be treated as a complete one. In case of a specific or conditional gift, the convenient which have been agreed to between the Donor and the Donee could be specifically mentioned in the agreement. Some of the draft of the agreements which may not be give complete picture but could be taken as specimen/s are enclosed herewith for the benefit of the readers.

Ultimately, it is on the facts and circumstances of each case the draft of the deed has to be prepared.

I, ————————————— resident at ———————————————————— have this ——————— day of ——————— 20 ——— conveyed and transferred by way of gift the property more particularly described in the Schedule hereunder written to ———————————————— residing at —————————— (the donee) The gift is made to him/her out of natural love and affection for him/her to hold the same unto the Donee absolutely for ever.

I have delivered possession of the said property to the said Donee which he/she has accepted.

The value of the property gifted is estimated to be Rs. —————.

In witness whereof I (the Donor) and the Donee have signed this Deed on the day and year hereinabove written.

——— description of item gifted ————

This Deed of Gift made at ————— this —————— day of —————— 20 ————

Between ———————————— (hereinafter referred to as Donor) of the One Part and —————————— a Society registered under the Society’s Registration Act, 1860 (hereinafter called ‘the Society’) of the other part:

Whereas the Society is conducting several charitable activities in the city of ———— and is in need of a suitable building for a public hospital/school etc.

And Whereas the party of the One Part has on a request made by the Society agreed to transfer and convey his building more particularly described in the Schedule hereunder written to the said society for the said purpose.

Now This Deed Witnesseth As follows :

1. The Donor hereby transfer and conveys to the said Society All That the building more particularly described in the Schedule To Hold the same unto the Society for ever but subject to the condition that the said property is used by the Society for the purpose of running a public/hospital/school without any discrimination on the ground of caste, creed, race or religion.
    

2. The donee hereby accepts the gift and covenants:

   — that it shall use the said building for the said sole purpose and subject to the said condition;

   — that the Society shall not alienate or encumber the said building or any part thereof at any time;

   — that if the society shall decide the discontinue the said activity or if it shall be found to use the said building or any part thereof for any purpose gifted, or if it shall discriminate on the ground of caste, creed, race or religion, this Gift shall stand revoked and that the Society shall reconvey the property to the donor or his heirs or successors absolutely and without any encumbrance, after removing all its articles, things and materials etc. lying in the said building, peaceably without any let or hindrance.
    

3. The value of the building is estimated at Rs. ————.

In Witness Where of the parties hereunto have set their hands on the day and year first hereinabove written.

Description of property