Both transfer ownership and both must be registered. A sale deed transfers property for a price; a gift deed transfers it without any payment. The difference shows up in stamp duty, which many states reduce for gifts within the family, and in income tax.
Side by side
Factor
Gift deed
Sale deed
Consideration
None
A price
Law
Transfer of Property Act, sections 122–126
Transfer of Property Act, section 54
Registration
Compulsory
Compulsory
Stamp duty
Set by the state; often concessional for close family
Full rate set by the state
Capital gains for the giver or seller
A gift is not treated as a transfer for capital gains
Gain is taxable
Tax for the receiver
Exempt from relatives as defined; otherwise may be taxed
None on buying, but TDS duties may apply
Can be reversed
Only on narrow grounds
Only on grounds that void a contract
When Gift deed matters
A gift deed is the route for passing property to family without payment, and often costs less in stamp duty.
When Sale deed matters
Any transfer for money should be a sale deed. Dressing a sale up as a gift to save duty is unlawful and can void the transfer.
In more detail
When someone who received property as a gift later sells it, the previous owner's cost and holding period carry over for working out capital gains.
Property received as a gift from a relative, as defined in income-tax law, is not taxed. From anyone else, its stamp duty value may be taxed as income above a small threshold. See the gift deed guide.