The taxability of gifts is an issue that taxpayers often have to consider. This article will provide information about the taxation of gifts received by individuals or Hindu Undivided Families (HUF), i.e., gifts received with or without consideration.

A gift deed is essentially a legal document that allows the owner of immovable or movable property to transfer his/ her property to another person without any consideration. Although it is not required to execute a gift deed when gifting assets. 

Gift deeds are any document that records the gift of immovable or movable property.

Donor - A person who gives the gift.

Donee - Someone who receives the gift.

From a tax perspective, a gift can be classified as follows:

- A ‘monetary gift' is money that is given without consideration.

- The term "gift of movable assets" refers to property that was received in exchange for no consideration.

- A movable asset received at a lower value (i.e., for insufficient consideration) is considered a ‘movable asset received for - less than its fair marketplace value'.

- Gift of immovable Property" refers to immovable properties that are given without consideration.

- Immovable property received for less than its stamp duties value" means that the property was purchased at a lower price (i.e., For insufficient consideration)

A gift deed involves two parties, the donor as well as the donee. The donor is the person who gives the gift, and the donee is the recipient of the gift. The donor must be able to make agreements and should be able to think clearly.

A minor cannot gift property to another person because he/ she can't enter into contracts. However, a guardian can accept gifts on behalf of the minor. In exchange for the gift, the donor should not be compensated.

The following clauses are included in a gift deed:

+ Details of Donor & Donee – The gift deed should contain the name, address, and relationship of the donor & donee.

Consideration - The gift deed should clearly state that the donor is transferring property out of love and affection and 

without any other consideration.

+ Voluntary Transfer – The gift deed should state that the donor wishes to transfer ownership of the gifted property voluntarily and without restriction to the recipient. The transfer must be free from fear, coercion, or threat.

+ Ownership of Property – The gift deed should clearly state that the gift property is present and that the donor has full ownership.

+ Property details - The gift deed should include a detailed description of the gift property.

Rights of the Donee- The rights of the donee should be included in the gift deed. The rights of a donee include the right to enjoy the property peacefully and to sell, mortgage, or lease it.

+ Acceptance by Donee- The gift deed should state that the donee has accepted the gift.

Intention - The gift deed should expressly or implicitly declare the intention to transfer ownership of the gift property.

+ Witnesses – The gift deed must include the names and addresses of all witnesses. At least two witnesses must sign the document and attest to it.

+ Revocation - Although the gift deed doesn't have to include a revocation clause, it is recommended to avoid future disputes.

You can break down the entire process of gifting through a gift deed into three steps. These are:

The Gift Deed Draft - Most often, the deed is drafted by a lawyer. The gift deed draft indicates the transfer of property from the donator to the donee. The Indian Registration Act of 1908 should be taken into consideration to draft the gift deed.

Acceptance of Gift – The gift deed must be signed by the donor. The gift must be accepted within the donor's lifetime. It could be invalidated if it is not. This means that both the donor and the donee must be present at the time of registering the deed.

Registeration of Deed – Stamp duty for gift deed must be paid as per the gift's value. Witnesses must sign the document along with the signatures of the donor and donee. The Indian Registration Act, 1908, and Transfer of Property Act govern the registration. In the case of gifts of immovable property, the title doesn't pass to the donee unless the gift deed has been registered.

Important Points to Consider:

The legal capacity of minors to sign contracts is not available, so they can't draft gift deeds. The guardian can accept a gift on behalf of the minor but cannot gift the property to another person.

It is impossible to withdraw a gift once it has been received.

Gifts to relatives that are mentioned explicitly in the Income Tax Act are exempted from tax.

Individuals and HUFs won't be subject to tax on monetary or immovable gifts or prescribed movable properties received as gifts in these cases:

1. A gift from a relative. We mean:

 - For an individual:

Spouse of an individual

A person's brother/sister

Sister or brother of the spouse

One of the parents' siblings or brothers may be one of them.

If any, the individual's lineal ascendant/descendant (if any)

If any, the lineal descendant or ascendant of a spouse is also included.

A spouse of an Individual, referred to as (b) to (f) 

e lineal descendant or ascendant of a spouse is also included.

A spouse of an Individual, referred to as (b) to (f) 

A friend is not considered a relative as per the income tax act. Gifts received from friends will be subject to tax (if any other criteria for taxing gifts are met).

For HUF

Any member of HUF

2. Money received by the individual on the occasion of his/her marriage. A monetary gift that is received outside of marriage is exempt from tax. Therefore, any monetary gift given on special occasions, such as birthdays, anniversaries, and so forth, the tax will be charged.

3. Money that is left to a beneficiary in a will or inheritance.

4. Money received in contemplation of the death of the payer/donor.

5. Money received from a local authority [as explained in the Explanation Section 10(20), Income-tax Act].

6. Any foundation, fund, university, hospital, or other educational institution may receive money from any trust or institution referred to in Section 10(23C).

7. Money received from a trust, institution, or other entity registered under Section 12AA/ Section 12AB.

8. Shares in connection with a demerger or merger of a company governed by Section 47, Clauses (vi-d or Clauses (vii), respectively.

9. Section 47(vi)-cb allows shares to be received in the event of a business restructuring of a cooperative bank.

The recipients are not exempt from the tax on the following types of gifts:

1. Money

You can give money in cash, cheques, or electronically. If the total value of all monetary gifts received by an individual exceeds Rs 50,000 and the gifts are not subject to the exemptions discussed above, gifts from India and abroad will be taxed as 'income from other sources.

2. Immovable Property

Individuals can receive land or buildings as gifts with Inadequate or total disregard.

Tax will be levied on immovable property that is received by an individual without consideration from a HUF or individual if the following conditions are met:

An individual/HUF can receive immovable property (either land, building, or both).

Immovable property can be defined as a capital asset under Section 2(14) for an individual or HUF.

This immovable property is subject to stamp duty and cannot be given as consideration. Its value exceeds Rs 50,000.

3. Moveable Property

If these conditions are met, then the tax will be levied on any prescribed movable property that an individual or HUF receives.

Prescribed movable property can be received without consideration (i.e., as a gift).

The taxpayer received more than Rs 50,000.