Stamp Duty and Taxation on Exchange of Property

Buying and selling property anywhere in the world comes with a lot of tax requirements that need to be satisfied by both parties, failing which such transactions could actually be illegal. Learn about what you need to do in either scenario. 

When a property is purchased, 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.

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 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. You can get the details on Stamp duty for Online Property Registry and Property Tax BBMP Online from experts.

Stamp Duty and Taxation on Exchange of Property

While selling a property it is important to initiate a sale deed or a sale agreement, which is required 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 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. You can also Know more about What is Patta Chitta in Real estate.

In terms of the cost of the stamp duty, it has to be mutually decided upon between the two parties. In the case of a sale deed, if there is 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 the 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.

The exchange of immovable property has an income tax implication. If the property is exchanged in a term period of more than 24 months then any profit or loss made will be considered 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. . However, it is necessary to have stamp duty and Online Income tax implications in any such transactions.

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 at. Moreover, if the property was in custody for more than 24 months, you will be permitted to avail of the indexation benefits and tax exemption ways available under Sections 54, 54F, and 54EC.

What Happens if there is an Exchange of a Residential Property?

If there is an exchange of a residential property, the exemption can be availed under Section 54. There will be 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. 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 an 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 into stamp duty and taxation on the exchange of property. It gives a clear idea of receiving no special tax benefit when you exchange one property against another, though money can be saved on stamp duty through an exchange deed. Check the Blogs of Vakilsearch for more help on these Topics.

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