Stamp Duty on Gift Deed and its Procedure in India
August 16, 2022Table of Contents
What is Stamp Duty?
The state government imposes stamp duty on the sale of property/property ownership. It is a government-collected tax, analogous to income tax. It is payable in accordance with Section 3 of the Indian Stamp Act of 1899. Stamp duty is required to be paid in whole and on time. It is payable prior to document execution, on the day of document execution, or the following working day after document execution. Execution of the document entails signing the instrument by the person who is a party to the document.
There is a penalty for failing to pay stamp duty on time. Any delay in duty payment will result in a penalty of 2% per month, up to a maximum of 200 percent of the stamp duty shortfall. Stamp papers must be purchased in the name of one of the parties involved in the agreement, i.e., the seller or buyer, or the stamp paper will be rendered inoperable. It is supposed to be valid for six months from the date of purchase, but only if the duty is paid on time.
In the absence of a contrary agreement, the purchaser/transferee must pay stamp duty, or in the case of property exchange, both parties must bear stamp duty equally.
A stamp duty paid instrument or document is regarded as a proper and lawful instrument or document with evidential value and is admissible in court. A document that has not been properly stamped is not admissible as evidence in court.
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What is a Gift Deed?
In a layman’s word, a gift deed is a gift that generally involves the transfer of ownership of a property, which may be moveable or immovable, and is transferred by one person to the other. Such transactions must be documented in a Deed or legal instrument signed by the Donor (the person who will provide the Gift) and the Donee (the Person who will accept the Gift). Most significantly, such a transfer must be performed voluntarily, without any monetary incentive or consideration.
If we try to comprehend it legally, it is a transfer of any property by way of a gift, and it must be completed by a registered instrument signed by or on behalf of the person gifting the property and the person receiving the gift, and it must also be witnessed by at least two witnesses.
According to Section 122 of The Transfer of Property Act, 1882, “Gift” is the 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.
What can be considered as “Gifts” in a gift deed?
A mobile or immovable property, as well as a transferable existing property, can be gifted.
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Eligibility criteria for a valid gift deed
The donor must be competent in order to document a gift deed. A minor cannot be a donor, according to the law. On the contrary, the beneficiary can be a minor with a natural guardian as a nominee who bears responsibility for managing the property until the donee reaches the age of majority. Furthermore, the beneficiary must be alive; else, the property would be declared null and void.
Essentials of a Gift Deed
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The Donor shall transfer ownership to the Donee.
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The property must be transferable in accordance with Section 5 of the Transfer of Property Act, 1882.
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The transfer must be made without any compensation or payment in monetary value.
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Also, such a transfer must be made voluntarily, with the Donor's free agreement.
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Acceptance must be made during the Donor's lifetime and while he is still capable of giving.
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A gift must be made of a specific moveable or immovable item that is in existence at the time of transfer.
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The gift must be tangible.
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Delivery of possession shall be the most significant component of the transfer of the gifted property.
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If the Donee dies before acceptance, the gift shall be null and void.
Clauses to mention in a gift deed
Consideration Clause: This language should be mandatory in the Gift Deed, stating that no money or other sort of payment is involved and that the transfer of property is being done out of love and affection. If there is any amount of relevant consideration, no matter how modest, the transfer will not be regarded as a gift.
Free Consent: The donor's transfer should be free of any undue influence, fear, coercion, or threat. The gift should clearly state that the transferor has a clear purpose to make such a transfer and that the transfer is voluntary.
Additional Rights and Liabilities: If any additional rights or liabilities are attached under this paragraph, they must be disclosed in the gift document. Any such rights affecting the further leasing or sale of the additional deed may be included in the entitlements.
Property Specifics: An in-depth description of the gifted property is required. The description may include information on the structure, address, color, area, and location, among other things.
Possession of Property: It is preferable if the applicant is the titleholder of the immovable property in possession i.e., the property applicant wishes to gift. The property should exist before making a gift of it since a donor cannot gift anything that he or she may obtain in the future.
Credentials of Donor and Donee: Whether the donor and donee are blood-related or not, the relationship between both them must be noted. Some Indian state governments also give a reduction in stamp duty if a gift deed is made to blood relatives.
Delivery Clause: A delivery clause in a gift deed confirms the delivery of property possession. This clause often refers to actions involving the transfer of property, whether expressly or implicitly.
Rights of Donee: In India, a distinguishing symbol of the Donee's rights becomes an attached portion of the Gift Deed. This section covers the donee's rights to make changes to the property, enjoy the land peacefully, and receive rents or other types of income from the bestowed property.
Revocation Clause: It is generally recommended to avoid any future issues; nevertheless, it is not required. Both the donor and the donee must agree on this provision, which must be mentioned rather than implied.
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Documents Required for registration of a gift deed
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Aadhar Card of the applicant;
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Identity Proofs, like Driver's License, Passport, etc.;
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PAN card of both the parties for the execution of the Gift Deed;
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Original Gift Deed that is to be executed;
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A document like a Sale deed to prove the title of the donor to the Property;
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A total of two witnesses are required at the time of execution of Gift Deed;
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The Encumbrance Certificate;
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A document certifying the Ready Reckoner Value; and
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Any other agreements which the applicant might have entered into concerning Property;
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Other essential materials as may be required according to the state requirements.
The applicant might need some other documents, as the above-mentioned list is not exhaustive. The applicant may need to add certain documents like certificates relating to the value of the property depending on the different state, etc.
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The procedure of Registration of a Gift Deed
In line with the Registration Act of 1908, it is mandatory to register a gift deed. These are the following steps to be taken for registration:
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An approved valuation expert will evaluate the property to be gifted.
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The donor and the donee will sign the gift deed in presence of 2 witnesses.
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Submit the legal documents at the office of the sub-registrar nearest to the gifted property.
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Engage the services of a lawyer to calculate the registration fees (stamp duty and other charges).
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Pay the stipulated fee.
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Get the deed attested.
The stamp duties vary for men and women, as well as from state to state so it is advisable to visit the respective state government website before the registration.
If the donor is a minor, the gift deed cannot be valid because minors are not allowed to enter into a contract, hence, cannot transfer a property gift to another person. However, if the donee is minor then its guardian will accept the gift on the behalf of the donee and act as the property manager unless the donee becomes an adult.
These guides are not legal advice, nor a substitute for a lawyer
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