By Transferring immovable property to a charitable organization involves more than a simple signature. While Section 122 of the Transfer of Property Act defines the mechanism of gifting, Section 126 provides the necessary safety net: the power of revocation.
For donors, the primary risk involves not just losing control of the asset, but facing unexpected tax demands because “in-kind” donations do not qualify for Section 80G deductions.
This analysis breaks down the statutory requirements for executing a valid conditional deed, the financial implications for both the donor and the NGO, and the specific drafting protocols to ensure the property reverts to the family if the orphanage ceases operations.
Execution and Validity of Conditional Gift Deeds for Charitable Purposes
Structuring a property donation to an orphanage requires precise legal drafting to ensure the asset serves its intended purpose without triggering adverse tax liabilities for the donor.
Quick Analysis Filter
Possession Not Mandatory
Post N.P. Saseendran v. N.P. Ponnamma, physical delivery of possession is not a condition precedent for a valid gift under the TPA if the deed is registered.
No Deduction for In-Kind
Donors cannot claim Section 80G deductions for property gifts. The deduction applies only to monetary sums, not “in-kind” asset transfers.
Fee Simple Determinable
Use “so long as” clauses to create a determinable interest. This ensures automatic reversion to the donor if the orphanage closes.
Capital Gains Exemption
Section 47(iii) exemption is now limited to Individuals and HUFs. Corporate donors may face capital gains tax on charitable gifts.
The Statutory Framework
The transfer of immovable property for an orphanage is governed by the Transfer of Property Act (TPA), 1882. A “Gift” is defined under Section 122 as the voluntary transfer of existing property without consideration.
For the gift to be legally binding, three elements must align:
- Voluntariness: The donor must act without coercion.
- Gratuitous Nature: No monetary consideration can exchange hands.
- Registration: Under Section 123 TPA, gifts of immovable property must be registered and attested by two witnesses.
Fiscal Liability Assessment
Visualizing the financial burden on Donor vs. Donee based on 2025-26 fiscal statutes.
The “Conditional” Gift Mechanism
A primary concern for donors is ensuring the property remains an orphanage. If the donee converts the building into a commercial complex, the donor typically wants the property back. This is achieved through Section 126 of the TPA, which allows for revocation on a specified event.
Drafting Strategy: Reversion Clause
To avoid the “Rule Against Alienation” (Section 10), the deed should not grant an absolute estate with a restriction tacked on. Instead, it should grant a Determinable Estate.
Recommended Phrasing
“To Hold the same… so long as the donee shall use the said building for the sole purpose of running the orphanage.”
The phrase “so long as” creates a natural expiration of the title if the condition fails, triggering an automatic reversion to the donor.
Structuring Options Compared
| Feature | Direct Gift (Conditional) | Private Trust | Long-Term Lease |
|---|---|---|---|
| Ownership | Transfers to Donee immediately | Vests in Trustees | Remains with Donor |
| Revocability | Only on specific breach (S. 126) | Generally Irrevocable | Revocable on breach of terms |
| Tax Impact (Donee) | Taxable if not 12AA registered | Taxable as per trust status | Rent is taxable income |
| Stamp Duty (WB) | ~5-7% (Subject to remission) | ~5-7% on settlement | Based on Lease tenure |
*Scroll table horizontally on mobile devices
The Doctrine of Cy-Près vs. Reversion
In charitable trusts, the Doctrine of Cy-Près (French for “as near as possible”) typically applies when a charitable objective becomes impossible to fulfill. Under general trust law, if an orphanage closes, the court may direct the property to another similar charity rather than returning it to the donor.
General Trust Rule
Without specific clauses, the property does not revert to the donor. It remains in the public domain for charitable use.
The ‘Reversion’ Override
To defeat Cy-Près, the Gift Deed must explicitly state that the transfer is a Determinable Fee. The “Reverter Clause” is the only mechanism that legally forces the property back to the donor’s family.
Advanced Legal Risks: Beyond the Basics
Detailed analysis of revocation mechanics, liability transfers, and foreign contribution risks.
1. Revocation Dynamics: Section 126 Deconstructed
Section 126 of the Transfer of Property Act allows a gift to be suspended or revoked, but the trigger event is legally specific. A deed that allows the donor to revoke the gift “at will” is VOID regarding the revocation clause, rendering the gift absolute.
“I give this property to the orphanage, but I can take it back whenever I feel like it.”
“I give this property to the orphanage, but if the orphanage ceases to operate for 6 months, it reverts to me.”
If the gifted property is burdened with an obligation (e.g., unpaid municipal taxes or pending litigation), the gift is “Onerous”.
- Single Transfer Rule: The Donee cannot accept the beneficial part of the gift (the building) and reject the burdensome part (the tax dues). It is an “all or nothing” deal.
- Donee Liability: Upon acceptance, the Donee becomes personally liable for the dues up to the extent of the property’s value.
3. FCRA Implications for NRI Donors
If the Donor is a foreign citizen (even of Indian origin), the gift of immovable property is treated as a “Foreign Contribution” under the FCRA, 2010.
Compliance Requirement:
The Donee (Orphanage) MUST possess a valid FCRA registration or prior permission from the Ministry of Home Affairs (MHA) before accepting the property title. Failure to do so can lead to the confiscation of the property by the central government.
Drafting for “Partial” Transfers
When gifting a portion of a building (e.g., “one-half portion” as noted in common templates), ambiguity is the leading cause of litigation. A simple description is insufficient for registration.
Critical Clauses for Shared Premises
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Easements of Necessity: Explicitly grant rights to use common staircases, roof access, and main gates. Without this, the Donee may be landlocked.
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Utilities Separation: Mandate separate electric meters and water connections within 3 months to prevent future disputes over bills.
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Structural Indivisibility: Include a clause prohibiting the Donee from making structural changes that threaten the stability of the Donor’s retained portion.
The “Schedule” Trap in Partial Gifts
A common reason for rejection at the Registrar’s office for partial gifts (e.g., “half a house”) is an imprecise Schedule. Describing a property as “Northern Side of House No. 12” is legally insufficient.
Required Specifics for Registration:
- Boundary Map: A map annexed to the deed must outline the gifted portion in RED and the retained portion in GREEN.
- Super Built-up vs Carpet Area: Explicitly state if the gift includes common areas (staircase landing, roof rights) or strictly the carpet area.
- Fixtures Inventory: If fans, lights, or pumps are included, attach a separate “List of Movables” to avoid future theft accusations.
Pro Tip: The “Common Wall” Clause
Always define the dividing wall as a “Party Wall” (Common Wall). This prevents either party from demolishing it without consent.
Risk Allocation & Indemnity
Once the orphanage is operational, the Donor (who often lives next door in partial gift scenarios) faces liability risks. If a fire breaks out in the orphanage or a child is injured on the common staircase, the Donor, as the original owner/neighbor, might be sued.
Drafting Solution (Indemnity Clause):
“The Donee hereby indemnifies and keeps indemnified the Donor against all claims, demands, actions, and proceedings arising out of the Donee’s use of the schedule property, including but not limited to accidents, fire safety violations, or non-compliance with the Juvenile Justice Act.”
Post-Registration Compliance Timeline
Day 0-30: Intimation
Submit a copy of the Registered Gift Deed to the local Municipal Corporation for “Mutation” (Change of Name). This separates the property tax liability.
Day 30-60: Utility Separation
Apply for separate electric meters. If the orphanage runs on the Donor’s commercial meter, the Donor pays higher tariffs.
Day 90: JJ Act Compliance
The Orphanage must use the Gift Deed to prove “possession” and apply for registration under the Juvenile Justice (Care and Protection of Children) Act. Without this, the facility is illegal.
Pre-Execution Due Diligence
Ensure these documents are ready before the date of registration.
Title Deed (Original)
Required to prove ownership. If lost, a certified copy with a Non-Traceability Certificate (NTC) is needed.
Encumbrance Certificate (EC)
13-year history minimum. Ensures the property is free from mortgages or pending suits.
Property Tax Receipts
Latest paid receipt is mandatory for registration in most states (e.g., Khajana receipt in WB).
PAN Cards (Donor & Donee)
Mandatory for any property transaction valued over ₹50,000.
Society Registration Certificate
Proof that the Donee is a valid legal entity capable of holding property.
Resolution of Acceptance
A board resolution from the Orphanage’s governing body authorizing a representative to accept the gift.
Drafting Templates
COPYABLE1. The “Parties” Clause (Correcting the Entity)
2. The Reversion Clause (Water-tight)
3. The Common Rights Clause (For Partial Gifts)
Complete Deed Template
Below is the complete standard format for the Gift Deed based on the specific partial-transfer scenario. You can copy this entire text and fill in the details.
Frequently Asked Questions
No. Section 80G of the Income Tax Act allows deductions only for sums of money paid. Donations in kind (like land or buildings) are explicitly excluded from this benefit.
If the Donee is not registered under Section 12AA/12AB, the receipt of the property will be treated as “Income from Other Sources” under Section 56(2)(x). The Donee will be liable to pay tax (approx 30%) on the market value of the property.
No. Once registered, a gift cannot be cancelled unilaterally. Even if the conditions are violated, the donor must file a civil suit for declaration and recovery of possession. A simple “Cancellation Deed” is legally void without a court order.
Not automatically. While West Bengal offers a low rate (0.5%) for family gifts, gifts to societies usually attract the full rate (~5-7%). Remission requires a specific order from the District Collector/Registrar after adjudication.
