You could pass on your assets to your legal heirs in two distinct ways- you could just hand it over while you are alive and kicking or leave it to them by a Will, a fancy legal paper. While each has its pros and cons, let us find out:
While it is difficult to say which one is better before we dwell on a Will Deed and a Gift Deed, it's important to understand its tax implications:
Will Deed: “A Will Deed is a document that comes into existence only after the demise of a person. A Will Deed specifies how a person’s assets and properties will be distributed after his demise. A Will can be either registered or unregistered. It has to be executed in the presence of two witnesses and a doctor’s letter to show that the person executing the Will is in a sound state of mind. The advantage or disadvantage of a Will is it can be revoked or changed at any point in time, before the demise. The possibilities of litigation or challenging the Will cannot be ignored,” Alay Razvi, Partner, Accord Juris LLP explained.
Purpose Of A Will Deed:
To prevent disputes and legal battles.
Express your last wish to be honoured
Tax Implication: The person who will be the beneficiary of the property will not have to pay any tax on the property acquired through Will. But, any income arising out of the property shall be taxable.
Gift Deed: “Gift Deed is a document which is executed during the lifetime of the person. Once the property is gifted through a registered Gift Deed, the person who gifts the property will lose all his rights and title to the property. It requires mandatory registration and the registration charges will differ on whether the gift is being made to a blood relation or non-blood relation,” Razvi said.
Tax Implication: When it is about blood relation, the tax will be exempted but any income arising out of the property shall be taxable. When it is about non-blood relations, the tax will only be exempted up to Rs 50,000 of the worth of the property. If the property is more than Rs 50,000, the same will be taxable.
While both legal instruments concern the transfer of assets, they have separate purposes and are applicable in different situations. A Will details a person's wishes for asset distribution after their death. In contrast, a Gift Deed allows for the immediate transfer of property from the donor to the recipient during the donor's lifetime, without any monetary exchange.
Determining whether to proceed with a Gift Deed or a Will for property transfer demands a careful assessment of individual needs and objectives. A Gift Deed offers the advantage of immediate ownership transfer, suited for those keen on facilitating urgent assistance to beneficiaries. Conversely, a Will empowers owners to retain control over their assets until their demise, ensuring a structured transition to chosen heirs and potentially averting family disputes. “Seeking legal counsel from a property lawyer facilitates a thorough comprehension of the legal implications, empowering individuals to make well-informed decisions tailored to their unique circumstances. Ultimately, the choice between a Gift Deed and a Will hinges on striking a balance between immediacy, autonomy, and familial dynamics,” Abhishek Awasthi, Partner, RR Legal Partners said.
Intrinsically, there are two approaches to securing a smooth succession of one’s estate to the intended beneficiary.
First, based on your family dynamics, you could pass on your residential flat while you are still alive. You could do this in your lifetime as this could leave you with fewer chances for confusion or fights later on. Also, you need not unnecessarily worry about anyone questioning the validity of the Will.
From an income tax lens, since the transaction would be undertaken between relatives, the same shall not attract adverse tax implications. “However, assuming the family accord is contrary to the above, i.e., your beneficial interest is to be devolved only after your lifetime, then it is crucial that the Will written is robust to prevent any unintentional ambiguity. Essential that the Will written pays attention to the advisable hygiene checks such as ensuring the independence of the witnesses (two in count) in whose presence the Will is being signed, enclosing a medical certificate (in case of senior citizens making the Will) stating that the person making the Will is mentally fit of sound mind, registration of Will to enhance its authenticity etc. It may further be ensured that no other record suggests your intentions to the contrary,” Keshav Singhania, head, of private client, Singhania & Co said.
In the case of immovable properties, a key consideration would be a difference in stamp duty implications. While real estate transferred through Will does not attract stamp duty outgo, in the case of a Gift deed, the applicable stamp duty would be determined by the state laws where the immovable property is situated. Furthermore, a Will does not technically require to be stamped or registered (though advisable). However, if it is a gift of immovable property, the Gift Deed would have to be mandatorily registered under the provisions of the Indian Registration Act, of 1908.
Given the sensitivity of the case, one may consider seeking the advice of a legal professional, who can assist with the requirements of a valid Will and thereby avoid errors that can invalidate a Will.
a. Purpose: A Will is a legally binding document that outlines the allocation of a person's property and assets after his demise, whereas a Deed of Gift is a legal document used to transfer the ownership of an asset without exchanging money during the lifetime of the donor.
b. Time Of Transfer: A Will only becomes effective after the testator’s death, whereas a Gift Deed can only be given effect during the lifetime of the donor.
c. Revocability: A Will can be revoked during the lifetime of the testator, whereas a Gift Deed is generally irrevocable unless there is a specific legal basis.
d. Tax Implication: “No tax is payable on inheritance through a Will, whereas in case of transfer through a Gift Deed tax is payable in cases the transfer is made out of the list of exempted situations,” Ankur Mahindro, Managing Partner, Kred Jure said.
e. Control Over Asset: The doner has full control over the asset during his lifetime in case of a Will, whereas the right in a property is immediately transferred to the recipient in case of a Gift Deed.
f. Registration: “Registration of a Will is not compulsory in India, whereas any gift that involves an immovable property must be registered to make it of legal value as per section 123 of the Transfer of Property Act,” Mahindro added.
