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Before India and the Panjab were divided, a Jagir was a small territory or parcel of land granted by a ruler or another authority to an army chieftain or an institution such as a Gurdwara for a period of time. The grant could be for a fairly short term (usually three years) or it could extend to the lifetime of the Jagardar (the person granted the Jagir). Such grants were often made in recognition of a leader's military service. Grants made to an institution were usually open ended.

When land was granted to a Gurdwara, the income produced from that piece of land was used to maintain the Gurdwara and provide for the sewadars and to run the langar and provide other facilities for the Sangat or congregation. A Gurdwara with a jagir became self-sufficient and did not have to depend on regular income from the Golak (donation box) for its normal running. Maharaja Ranjit Singh was probably the biggest donator of Jagirs to historic Gurdwaras.

The grantee of the jagir, called a Jagirdar, became in effect the ruler of that region (or jagir) and the lions share of income earned (taxes, etc.) from the region went to the "owner" or jagirdar to maintain his family and his troops. The jagirdar would live at court in Delhi, keeping up his rank and appear twice a day before the ruler; consequently the jagirdar preferred to receive his share of the dues from the estates in coin rather than in kind.

Jagir as per law was a grant made by the Ruler was only for the lifetime of the grantee. On the death of the grantee, the grant reverted to the Ruler and it was in the sole discretion of the Ruler either to re-grant it, or not. It was open to the Ruler to re-grant it to the heirs and successors of the previous grantee, or to one or more of them, or to a total stranger. Most often the Jagirs were, in practice, hereditary.