What is the agreement of a gift and how to make it?

In India, transfers of property as gifts are governed by the Transfer of Property Act of 1882. Gifting real estate means transferring ownership of the real estate to another person by signing a gift agreement. A gift agreement is an instrument by which the owner of the real estate or movable property transfers his property to another person free of charge as a gift. Let us have a look at what is the Gift Deed, what Properties can be donated by gift deed, & Gift Deed Format in India.

• A Gift Deed: What is it?
• Parties to a gift contract
• Properties that can be donated by gift deed
• Gift Deed: Important Points to Mention
• Can I revoke the gift deed?
• Income tax on gift deed
• Tax exemption for gift deeds
• Gift Agreement Template
• Registration of the gift agreement
• Final words

A Gift Deed: What is it?

A gift deed is an agreement that is used when a person wants to donate their property or money to someone else. With a deed of gift, a movable or immovable thing can be donated voluntarily, from the donor to the recipient. A gift deed allows the property owner to gift the property to anyone and prevents future disputes arising from inheritance claims. A registered deed of gift is also proof in itself and unlike a will, the transfer of property is instant and you will not have to go to court to execute the deed of gift thus a deed of gift also saves time.

Parties to a gift contract

There are two parties in a gift contract, i.e. the donor and the donee. The donor is the one who donates his property, and the donee is the one to whom the property is donated. The donor should be of sound mind and competent to enter into contracts at the time of donation.
A minor is not able to donate property because he is not able to enter into contracts. However, the guardian of a minor can accept gifts to a minor on his behalf. The donor should donate without consideration, that is, the donor should not receive anything from the recipient for giving the gift.

Properties that can be donated by gift deed

The donor can donate real estate and movable property to the recipient. Immovable property means land or any benefits arising from land or anything connected with land but does not include growing crops, standing timber, or grass. Real estate that is not considered immovable property is considered movable property.
However, the donor can only donate real estate that exists at the time the donation contract is drawn up. He cannot donate property that he expects or will acquire in the future. The donor can only donate property of which he is the rightful owner. The donor must own the gift property at the time of donation.

Gift Deed: Important Points to Mention

• There is no force or money involved: Be sure to add this consideration clause to the gift agreement. It must be stated that no money is exchanged and that the deed of gift is made purely out of love and affection, not money or coercion.

• When making a gift, you are the owner of your property: Only the owner can donate the property. If you are not the owner (title holder) of the property, you cannot gift it to someone else, even in advance.

• Describe the property: All information related to the property such as structure, type of property, address, area, location, etc. must be given in the format of the gift deed of the property.

• The donor and the recipient relationship: Some state governments may offer a stamp duty discount if the donor and recipient are blood relatives. Even otherwise, it is important to establish the relationship between the donor and the donee in the format of a real estate donation contract.

• List liabilities: If rights or obligations are associated with the gift, e.g. whether the recipient can sell or rent the property, etc., such clauses should be included in the gift contract.

• Delivery Clause: This on the deed of gift states the express or implied act of transfer of possession of the property.

• Revoking a gift: The donor can also clearly state whether he wishes the donee to adhere to the withdrawal clause on the gift agreement. Both the donor and the recipient must agree on this clause of the gift contract.

Can I revoke the gift deed?

Once the property has been legally donated, it becomes a done and cannot be easily revoked. However, under Section 126 of the Transfer of Property Act 1882, revocation of a gift deed may be allowed in certain circumstances:

• If the gift contract was concluded due to coercion or fraud.
• If it is found that the reasons for the gift contract were immoral, illegal, or reprehensible.
• If it was agreed from the beginning that the donation contract is revocable under certain circumstances.

In such cases, even in the event of the donor’s death, his legal heirs can proceed to revoke the donation contract.

Income tax on gift deed

The gift deed must be included in the tax return. The Gift Tax Act of 1958 was repealed in 1998 and was re-introduced in 2004. In case you have been gifted an immovable property as a gift deed, you will have to pay tax if the stamp duty value exceeds Rs.50, 000 and if the property is acquired without the necessary consideration.

Tax exemption for gift deeds

If the property was acquired from one of the following companies, then the above provision will not apply and the donee will not be taxed:

• If the gift deed is received from relatives by an individual and from a member of HUF.
• If the deed of gift is accepted on the occasion of the marriage of an individual.
• If the gift contract is accepted by will or inheritance.
• If the gift contract is accepted in anticipation of the death of the payer or donor.
• If the gift deed is received from a local authority (as defined in the Explanation to Section 10(20) of the Income Tax Act, 1961).
• If a donation agreement is received from any fund, foundation, university, other educational institution, hospital, or other medical facilities, any trust or institution referred to in section 10(23C).
• Where a deed of gift has been received from a trust or an institution registered under section 12AA.

Gift Agreement Template

[Your organization’s logo]

[Your Organization] and Donor’s Name

This Gift Agreement (“Agreement”) is made this ____ day of _______ between [Donor’s Names] and their assignee (hereinafter referred to as “the Donor”), and [Your Organization] an [arts nonprofit organization located in Indianapolis, Indiana]. The Donor and [Your Organization] agree as follows:

• Donor Commitment. The Donor hereby pledges to [Your Organization] the sum of [insert amount] or more, which as provided for herein is designated for the benefit of [Fund Name] Endowment.
• Donor Purpose. Purpose. It is understood and agreed that the gift will be used for the following purposes: To establish an endowment from which the annual interest earnings will be used to [state purpose].
• Payment. It is further understood and agreed that the gift will be paid in full on or before [insert date]. Pledge payments will be made as follows:

It is also understood and agreed that the gift funds as received may be invested by a third party that shall best determine investment options for this endowment fund The spending policy for the endowment will be the policy set forth and approved by [Your Organization] Board of Directors which will likely include the use of annual interest earnings only and not invade the principal of the fund to protect and perpetuate growth.

• Endowment. The gift specified above shall be used for the purpose of creating an endowment fund to be known as the [Fund Name] (“Fund”). The assets of the Fund may be merged or pooled for investment and investment management purposes with the general endowment or other assets of [Your Organization] and managed and invested in accordance with [Your Organization] policy and procedure, but shall be entered on the books and records of [Your Organization] as the [Name of Fund]. Distributions in support of the above gift purpose and reasonable fees associated with securing, raising, investing, and administering such funds shall be charged to the said Fund administered in accordance with the policies and procedures of [Your Organization] then in effect.
• Intent. It is the agreement of the parties and the intention of the Donor that this gift and any unpaid promised installment under this Agreement shall constitute the Donor’s binding obligation and shall be enforceable at law and equity, including, without limitation, against the Donor and the Donor’s estate, heirs and personal representatives, and their successors and assignees. The Donor acknowledges that [Your Organization] has substantially relied on, and shall continue to rely on, the Donor’s gift being fully satisfied as set forth herein. The Donor acknowledges that [Your Organization] has committed substantial resources toward the match.
• Recognition by [Your Organization]. To honor the Donor, and to express the appreciation of [Your Organization], publicity in the form of news announcements, both internal and external, will be made in the annual report with the permission of the Donor.
• Reporting and Stewardship. Reports on the performance of the Fund and use of the proceeds shall be provided annually to the Donor for endowment gifts.
• Additional Gifts. The Donor reserves the right to increase the Fund through additional gifts and hereby consents to additional contributions to the Fund by any individual, corporation, foundation, trust, estate, or other legal entity through individual gift, bequest, or another gift vehicle, and all gifts so designated shall be subject to the provisions of this Agreement.
• Future Changed Circumstances. If in the opinion of the Board of Trustees of [Your Organization], all or part of this gift cannot at some time in the future be usefully or practically applied to the above purposes or if the purpose cannot be achieved because of a future change in law or unforeseeable circumstances, it may be used for any related purpose which in the opinion of the Board of Trustees will most nearly accomplish the Donor’s wishes.
• Amendment. By mutual consent of [Your Organization] and the Donor, the Donor’s legally or duly appointed agent or attorney-in-fact, or the personal representative of the Donor’s estate, any provision of this Agreement may be amended, modified, or deleted. Any such changes, deletions, or additions shall be recorded in written signed addenda, which shall form part of this Agreement.
• Morality Clause. If at any time the donor or his or her name may compromise the public trust or the reputation of the institution, including acts of moral turpitude, the institution with the approval of the board of trustees has the right to remove the name or return the gift.
• Entire Agreement. This Agreement contains the entire understanding of the parties with respect to the subject matter of the Agreement and is subject to the laws of the State of [Your State]. This Agreement also supersedes all other agreements and understandings, both oral and written, between the parties relating to the subject matter of the Agreement.

In witness whereof, the parties to this Agreement have affixed their signatures:

THE BOARD OF DIRECTORS OF [Your Organization]

[Donor’s Name] Date [President’s Name] Date
Donor President and Chief Executive Officer

[Donor’s Name] Date [Nonprofit CEO’s name] Date
Donor Chairman, Board of Directors

XXXXXXX Date XXXXXXXX Date
Witness Witness

Registration of the gift agreement

According to Section 123 of the Transfer of Property Act of 1882, a gift of immovable property is valid if it is donated using a registered gift agreement with the signature donor and the donee and attested by two witnesses. A gift of a movable object is valid when donating based on a recommended gift contract or by handing over the object to the recipient.

To register a gift deed, the gift deed containing all the clauses must be drawn up on stamp paper. The donor and recipient should sign all pages of the donation agreement and at least two witnesses must witness it. For the gift to be valid, the donee must accept the gift during the donor’s lifetime and while the donor is sane.

The value of the stamp paper on which the gift contract is drawn up varies from state to state. A donation contract drawn up on stamp paper should be registered with the registry office or sub-registry in whose jurisdiction the donated property is located. If the property is movable, the jurisdiction of the registrar or sub-registrar is the place where the donor resides.

Final words

To be a transfer as a gift, it must follow the provisions of the Transfer of Property Act. This law extensively defines the gift itself and the circumstances of the transfer of such a gift. A gift that is a transfer of ownership rights must be in the possession and ownership of the transferee and must exist at the time of the transfer. The transferor must be competent to make such a transfer, but the transferee may be any person. In case the transferee is not eligible for the contract, the acceptance of the gift must be confirmed on his behalf by a competent person. The gift of future real estate is invalid. Partial acceptance of welfare gifts and rejection of difficult gifts do not apply either. Accepting a gift means accepting the benefits and obligations associated with such a gift.

Neelansh Gupta is a dedicated Lawyer and professional having flair for reading & writing to keep himself updated with the latest economical developments. In a short span of 2 years as a professional he has worked on projects related to Drafting, IPR & Corporate laws which have given him diversity in work and a chance to blend his subject knowledge with its real time implementation, thus enhancing his skills.