What are the Stamp duty and Taxation on the Exchange of Property?

Last Updated at: Aug 02, 2021
What are the Stamp duty and Taxation on the Exchange of Property?


What is the process on an exchange of property and the additional documentation required to complete the sale?

When a property is brought, the transaction of sale takes place in the form of money. However, it is not compulsory to include money for the transfer of a property. The exchange of property in place of another is allowed under the Indian property law. Similarly, the exchange can be between a residential place and a commercial place or even a residential place with another residential place. There are options to transact between commercial property, residential property, land and under-construction property. Depending on the difference in the value of both the properties, the difference can be settled by the mode of payment. However, it is necessary to have stamp duty and income tax implications in any such transactions.

When it comes to selling a property, you need to initiate a sale agreement or sale deed. This is mandatory and should adhere to the property’s market value. An exchange deed is needed to exchange a property and it is completely different from a sale transaction. Here, you will get to know the details related to the stamp duty and taxation process on property exchange.

Stamp duty implications on the exchange of property

While selling a property it is important to initiate a sale deed or a sale agreement, which is mandatory to be stamped with the rate applicable on the market value of the property.

However, to have an exchange of property an exchange deed is required, as an exchange transaction is completely dissimilar from a sale transaction. There is also a possibility to initiate two separate sale deeds but in such a case it would be essential to pay stamp duty on both the agreements. Different states have different laws and hence it is important to check with the law of that specific state.

The value, for the purpose of stamp duty, is taken as the property with the higher market value. For example, if you exchange your smaller flat with a bigger flat in the same building, the stamp duty will be payable on the market value of the bigger flat.

In terms of the cost of the stamp duty, it has to be mutually decided between the two parties. In case of a sale deed, if there no mutual agreement between the parties, it is the buyer who has to bear the cost of the stamp duty. While, in the case of an exchange, the matter needs to be resolved with mutual understanding between the parties.

As per law, the exchange deed claims to transfer rights in immovable property, as per Section 54 of the Transfer of Property Act; it has to be registered with the office of the registrar of assurance.

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Income tax implications on the exchange of property

The exchange of immovable property has an income tax implication. If the property exchanged in a term period of more than 24 months then any profit or loss made will be considered as long term. Similarly, if the exchange is in a term period of fewer than 24 months then any profit or loss made during its acquisition will be considered as short term.

There could be a scenario where both the parties may not add any value to the property except the differential amount while creating the exchange deed. In such circumstances, to find out the capital gains, knowing the market value of your property as per stamp duty and further comparing it with the price that the property was originally purchased. Moreover, if the property was in custody for more than 24 months, you will be permitted to avail the indexation benefits and tax exemption ways available under Section 54, 54 F and 54 EC.

If there is an exchange of a residential property, the exemption can be availed under Section 54. There will no tax liability for the owner who is exchanging the smaller flat for a bigger one. Similarly, if you acquire a smaller flat with the market value approximately equal to the indexed long term capital gains, computed as on the larger flat, then there will be no tax liability.

If there is an exchange of your commercial property or land, for a residential property, then the details will have to be checked if the amount of investment in the residential property is at least equal to the market value of the commercial property/land which is going to be exchanged. If there is a deficiency, an investment into capital gain bonds under Section 54EC can be done. In under any circumstances, if the exchange of your residential property, commercial property or land is against another piece of land or commercial property, there can be no tax exemption. To claim an exemption on long term capital gains occurring on such exchange, an investment in a residential home under Section 54F or in capital gain bonds under Section 54EC.


The above explanation gives a detailed insight on stamp duty and taxation on the exchange of property. It gives a clear idea on receiving no special tax benefit when you exchange one property against another, though money can be saved on stamp duty through an exchange deed.