Gift Deed & Relinquishment Deed

Mrs Guddu Sharma w/o Late Ranjit Sharma wanted to obtain a loan for housing. She gave the bank a photocopy of her lease deed with three names. First, Mrs Vimla Devi (herself), second Mr Yash (son), aged 19, and third Ms Shreya, (daughter), aged 23. She explained that the property had been in her husband’s name before he died and that the local development authority issued a lease agreement in the names of all three legal heirs. Her daughter was now married. Further, Mrs Sharma informed the bank that her daughter didn’t want to share in the property. She wanted to know how to proceed.

She also wanted my advice on how to transfer the share of her daughter to her name. You may find that a sales deed is not the best idea in these cases, especially if it’s for your family. Instruments such as a relinquishment or gift deed may be able to help you in these cases. Blindly selecting one can cause problems. Before you can get a deed drafted, it is important to understand its purpose. Each deed has its advantages and disadvantages. 

These documents serve a definite purpose in the transferred property. You can consult a lawyer or financial planner for expert advice.

Sale Deed

This is the most commonly used document to transfer immovable property. This document is between two people, the seller and the buyer/seller.

 A sale deed allows for a one-way transfer of money. It must be registered in the office of the sub-registrar. Buyers will have to pay stamp duty according to the state stamp act.

Gift Deed

This document is useful to transfer ownership or gift assets without the need for money exchange. You can gift immovable property by simply drafting the document on stamp paper. Two witnesses should attest to it. Section 17 of 1908’s registration Act makes it mandatory to register a gift deed at the sub-registrar’s office. Otherwise, the transfer will be null. You cannot reverse this type of transfer. It implies that if you gift your property to a relative, it will become the beneficiary’s property. You cannot reverse the transfer or ask for monetary compensation.

However, registration is not required if you wish to gift movable property such as jewellery or paintings. However, you must register the property in your account and give physical ownership to the property. You can support this action by drafting a gift document. Gifts to certain relatives (your spouse, your spouse’s lineal descendant or ascendant, siblings of one of your parents, or brothers or sisters of either your spouse or parent or, in the case of HUF, any family member or sibling) will not be subject to tax. Gift deeds to relatives are not taxable.

Advantages

If you gift property to relatives, the greatest benefit is that there are no tax implications. Gifts of property are subject to stamp duty. Stamp duty for immovable property can range from 1-8% to 5%, depending on where it is transferred. The stamp duty for gifting property to a relative would be higher at between 5-11%

Drawbacks

Although you cannot revoke a gift deed, it can come under a challenge in court. The most common grounds are coercion or fraud. If you are being tricked into giving the property, you can appeal to the court to reverse the transfer. You can also challenge it if the donor is not sound or a minor. A gift deed that is not subject to a challenge is not possible to draft. However, it is advisable to consult a lawyer before drafting it. This will reduce the chance of it being challenged. You cannot gift property jointly owned. You can’t gift a property that you and your spouse own jointly if you don’t have the legal consent to do so.

Relinquishment Deed

This type of deed will answer Mrs Sharma’s question. Although the legal implications of this document are different from a gift deed, it is still the same. A relinquishment document is a legal document where a legal heir gives away or releases his legal rights to an inherited/parental property in favour of other legal heirs, such as brother, sister, mother or father. “Relinquishment” refers to the surrender or abandonment of rights, title, and interest by one co-owner of the property in favour of other co-owners. This means that the share of one owner increases.

This instrument is useful to transfer ownership rights to a property to another owner. This transfer is irrevocable, even if there is no exchange of money. Like all documents relating to the transfer of immovable property, both parties must sign a relinquishment document. The registration of relinquishment documents is required by section 17 of the 1908 Registration Act. The value of the stamp duty for the gift deed is the same as that for the relinquishment deed. There is neither a discount for relatives nor tax benefits. Stamp duty and tax are only applicable to the part of the property you give up, not its entire value.

Advantages

This document allows for seamless transfer of your shares to the jointly-owned property. This document is used most often when a person dies, and no will is left behind. All siblings inherit the property. A relinquishment document transfers the shares of legal heirs to one of them and then gets the Mutation favouring the legal heir in local development authority records. The relinquishment can be drawn for monetary consideration, unlike a gift deed. After the death of one parent, Indian daughters usually give up their share to their brothers through this deed.

Drawbacks

Tax benefits are not available because, as per tax laws, “transfer” includes relinquishment and not gift. The transferor will realize capital gains if you give up property in exchange for monetary consideration.