Real Estate Property is one of the most sort-after investment options in India. You can acquire immovable property in many ways and there can be many situations when you wish to transfer your ownership in a property to your beloved ones.
The most widely used means of transferring or acquiring a property is through the execution of SALE DEED, which is also known as TRANSFER DEED. But, sale deed may not always be a tax-efficient (or) cost-effective mode.
There can be a situation when you would like to relinquish your share in the property to your daughter or sister. In such cases, transferring the property through a Gift Deed can be a suitable option.
Another situation can be, if you would like to ensure that your property is distributed to your beneficiaries according to your wishes, execution of WILL can be considered.
In this post, let us understand – What are the different ways of transferring real estate property like land, home, plot, flat etc.,? What are the tax implications under each mode? What are the major differences among different kinds of Deeds like Sale Deed, Relinquishment Deed, Gift Deed etc.,?
Different ways of acquiring or transferring Real Estate Property
You can acquire ownership of immovable property in the following 5 popular ways;
- By purchasing the Property
- Through GIFTS
- Through SETTLEMENT (Or) Partition of Properties
- Through relinquishment of ownership in a property (or)
- Through inheritance or WILL
1 – Sale Deed
This is the most popular way of transferring the property. If you hold a property and you would like to sell it outright for a consideration (sale value) then execution of SALE DEED can be considered.
The registration of sale deed or transfer deed is mandatory and once the sale deed is registered in Sub-Registrar office, the ownership gets transferred to the new owner.
- Cost : Stamp duty and registration fee have to be paid to register the SALE DEED. The fees can vary from State to State. For example, in Karnataka you have to pay 5% of the market value of the property as Stamp Duty and 1% as Registration Fee.
- Tax Implications :
- If you are a seller of the property then you have to pay applicable taxes on Capital Gains. (Read : How to calculate Capital gains on sale of property? What is STCG / LTCG? How to save capital gain taxes on sale of immovable property?)
- Kindly note that The Registrar of properties will report purchase & sale of all immovable property exceeding Rs 30 Lakh to the Income Tax authorities.
- The monetary limit for quoting PAN for sale or purchase of immovable property has been raised to Rs.10 lakh from Rs.5 lakh.
- If you are buying a property worth Rs 50 Lakh or more then you have to pay 1% TDS.
- If you are a buyer and acquiring an Under-Construction property then the applicable tax benefits can be different. (Read : ‘Under-Construction Property & Income Tax implications’)
- Format : Below is the general format of Sale deed. Click on the below image to download Sale Deed Template (actual templates can vary from state to state, below one is applicable for property transactions in Karnataka).
2 – Gift Deed
A gift is money or house, shares, jewellery etc. that is received without consideration, or simply an asset received without making a payment against it and is a capital asset for the ‘Recipient’. It can be in the form of cash / movable property / immovable property.
If you would like to gift the property to any of your blood relative, Gift deed can be used. In case of immovable property, it is mandatory to register the Gift Deed as per Section 17 of the Registration Act, 1908.
This kind of transfer is irrevocable. Once you gift the property, it belongs to the beneficiary (receiver of gift) and you cannot reverse the transfer or even ask for monetary compensation.
It can be a cost effective way of transferring the ownership in a property. (You can gift the property to non-family members too but the stamp duty or registration fee can be higher than in the case of a gift to a family member.)
- Cost : The stamp duty is payable for registering a Gift Deed. The stamp duty on gift deed is generally less than the stamp duty that is applicable for selling the property through a Sale Deed. For example, in Karnataka the applicable stamp duty is Rs 1000 (fixed) and Rs 500 (fixed) as registration fee in case if the donee (receiver) is a specified Family member. In case of non-family member then it is 5% & 1% respectively.
- Tax Implications on acquiring a Property through Gift Deed :
- If you receive a gift (movable or immovable) from a relative then no tax will be levied. However, if you receive a gift (movable or immovable) from non-relative then up to Rs 50,000 (stamp duty value of the immovable property or Fair market value of movable property) is tax-exempted.
- As per the provision of taxation of gifts, any Gift received from any person on the occasion of the marriage is not liable to income tax.
- Gifts received under a WILL or inheritance is tax-exempted.
- If you get a property through a registered gift deed (wherein your PAN is quoted), you can show the value of the gift received as ‘Exempted Income‘ in ITR. This is to avoid any scrutiny by income tax authorities in the future.
- You need to watch out for ‘clubbing of income’ provisions. Kindly note that rules of clubbing of income comes into picture if you gift a property to your spouse, or minor children or Son’s wife. Any income earned by the recipient on the gift shall be clubbed with the income of donor (you).
- Read : ‘Gifts & Income Tax implications…‘)
- .Format : Below is the general format of Gift deed. Click on the below image to download Gift Deed Template.
3 – Relinquishment Deed / Release Deed
If there are multiple owner for a property, and if one of the co-owner wants to transfer his/her rights in the property to another co-owner(s) then this can be done through the execution of RELINQUISHMENT DEED.
The transfer of property through Relinquishment deed can be for consideration or without consideration (without any exchange of money). Like gift deed, this transfer is also irrevocable.
- Cost : The Relinquishment deed has to be registered and applicable stamp duty has to be paid. The stamp duty has to be paid only on the portion of the property that is being relinquished and not on the total value of the property. Generally the applicable fee is similar to that of a Gift Deed.
- Tax Implications: The tax on capital gains (like in Sale Deed case) is applicable but only on the portion of the property that you relinquish.
- Format : Below is the general format of Relinquishment deed. Click on the below image to download Relinquishment Deed Template.
There is a very thin line of difference between Relinquishment deed and Release Deed.
Relinquishment Deed instrument is commonly used when a person dies intestate (without leaving a WILL) and his/her siblings inherit the property. For example – If father of two kids who owns a real estate property dies without leaving a WILL then his two kids inherit the property. If one of the siblings wants to relinquish his share in the property then he can execute Relinquishment deed in favor of his brother.
Whereas in the case of Release Deed, let’s say if both partners mutually purchased the property and one of the partner wants to release his share from the property than in that case Release Deed can be executed.
4 – Partition Deed / Settlement Deed
Partition Deed is generally executed by the co-owners of the property (jointly held property) when a court order or order by an local revenue authority has to be implemented.
In case of Settlement Deed, however, the property is owned by a third person and is settled in favour of person’s who do not have any previous interest in the said property and the share of the beneficiary is as per the wishes of the settler.
Unlike WILL, Settlement is a non-testamentary document which becomes operative immediately. Will is a testamentary document, which becomes operative after the death of its author. Also, WILL is revocable and can be modified by the testator, whereas Settlement deed is irrevocable.
- Cost : The deed of settlement attracts stamp duty and registration of the settlement deed is compulsory. The stamp duty payable is similar to that payable on a sale deed, i.e. based on the market value of the property. However, concessions are available in case of settlement made in favour of family members. For example : in Karnataka the applicable stamp duty is Rs 1000 (fixed) and Rs 500 (fixed) as registration fee in case if the donee (receiver) is a specified Family member. In case of non-family member then it is 5% & 1% respectively. Partition Deed also has to be registered.
- Tax Implications: As long as no transfer (re-sale) takes place, the parties to a (family) settlement or Partition won’t be subject to capital gains tax in respect of the profits derived from their share of the property.” The transfer or re-sale can happen by executing Gift Deeds or Sale Deeds.
- Format : Below is the general format of Partition deed. Click on the below image to download Partition Deed Template.
5 – Inheritance / WILL Deed
You can acquire a property through inheritance or WILL DEED. If a person dies intestate then the properties are transferred as per the Law of Succession. WILL Deed can be revocable by the Testator during his/her life time. So, the beneficiaries of WILL get the ownership rights in a property only after the death of the Testator.
After the death of the testator, person claiming through the WILL DEED or inheritance need not Register the property in his name.
(Read : ‘Importance of writing a WILL..‘)
However he/she has to apply to the concerned local civil authorities with the copy of the will, Succession Certificate (Legal-heir Certificate) and death proof (death certificate) for getting mutation of the property done in his/her name.
After the death of owner of a property his heirs, such as wife, children i.e. male and female, married or unmarried may, as per respective personal law, get the Patta/Khata transferred on production of death certificate of the owner with details of property held by him.
For example : If property is an agricultural land – Mandal Revenue Officer ( under Andhra Pradesh Land Revenue Act), and if property is house or vacant land in a city/village other than agricultural land — Offices of Corporation, Municipality, Panchayat can be contacted.
- Cost : Registration of WILL DEED is not compulsory. Stamp duty charges are not applicable and registration fee of Rs 200 is applicable (in Karnataka).
- Tax implications if property is acquired through inheritance or WILL : When you receive a property through inheritance or WILL DEED, there will be no tax implications. However, if you re-sell the property then normal capital gain taxation rules are applicable for the inheritor. The property which is acquired do not cost anything to the inheritor, but for calculation of capital gain the cost to the previous owner is considered as the cost of acquisition of the Property. Also, the year of acquisition of the previous owner is considered for the purpose of indexation of the cost of acquisition.
- Format : Below is the general format of WILL Deed. Click on the below image to download WILL Deed Template.
Transferring or acquiring a property is a BIG decision and can be an emotional one too. We suggest you to discuss the above property related matters with your family members / well-wishers and also take a legal opinion, if required.
Hope you find this post informative and useful. Kindly share your views and comments. Cheers!
(Post Published on : 30-August-2016) (Image courtesy of fantasista at FreeDigitalPhotos.net)