Buying a property is a challenging job, It goes the same way around for transferring it, but not anymore in this article we have compiled all the details essentials for a property transfer.
Let us start with various modes one by one through which you can transfer your property and save cost on transfer. It is worth noting that the transfer of property attracts taxes. So you can plan accordingly to save s few pennies on taxes and at last, we will conclude our article on a thoughtful note. Here are all the details essentials for a property transfer.
Sale deed most popular and common way of transferring a house property. A sale deed can be executed between two persons who agreed to exchange a property for consideration. The property under the sale deed is usually acquired or sold at a fair market value. The deed is usually required to be registered with the local sub-registrar office to transfer the ownership into the hands of the buyer.
It is worth noting that there is a business relationship between buyer and seller and thus, there is a commercial substance in the transfer of the property. the seller will have a substantial capital gain on such a transfer. Also, Such a transfer will be squarely covered under sec. 45(1) of the Income Tax Act, 1961 and will be subject to capital gain tax assessment. It is advisable to consult a tax consultant to save a few pennies on tax.
If you want to avoid taxes from a gift deed transfer, well let us just say it’s not easy. A gift deed is a legal document wherein you can transfer property without receiving something in return. So There is no commercial substance in a gift deed and the transferor is willing to transfer the ownership of the property out of love or affection.
To avoid confusion, A property acquired from inheritance is not through the execution of a gift deed rather It is an operation of law, and to be specific, The inheritance of property is governed by The Hindu Succession Act, 1956 where the members of the Hindu undivided family acquire an equal right in the property after the head of the family dies ie, Karta.
Any property acquired under a gift deed from a non-relative shall be subject to tax assessment under the Head “Other sources” under The Income Tax Act. 1961.
A property is inherited when the Karta of the Hindu Undivided Family(HUF) dies or ceases to exist through the operation of The Hindu Succession Act, 1956. It is worth noting that every member of the HUF gets an equal right in the property subject to an existing will by the deceased. Also, through the amendments introduced in The Hindu Succession Act in 2005, even the female members are part of the HUF of their father. So, If you are a married woman who lives under the establishment of your husband, you can rightfully claim your shares in the property from your brothers even if you don’t live in your parent’s establishment.
It is the easiest way to acquire a property, and the tax assessment arises only if you sold the property to some other person for monetary consideration. Property inheritance is not a transfer under Section 47 of the Income Tax Act, 1961.
Under the Relinquishment deed, you may surrender your ownership of the property to other legal heirs who are also the co-owners and you may detach yourself from the inheritance through the relinquishment deed in favour of your siblings. There are high chances that a transfer under relinquishment deed could not attract Income tax even if the transfer is purely of commercial substance. This may happen if both the parties to the deed are covered under the definition of relatives given under The Income Tax Act, 1961
A person who is alive can make a will that will execute when dies stipulating how the property in his own name will be distributed or donated or any such terms that will clear the ownership disputes on the property. A will must be notarised and registered under a sub-registrar office to have a legal effect. Such a will can be dissolved or re-enacted during the life of the Individual. Just like inheritance, a person acquiring a property through a will is exempt from tax since transfer through a will is squarely covered under Section 47, which stipulates certain circumstances that are not considered as transfers under The Income Tax Act, 1961. However, any subsequent transfer will be subject to tax assessment under the head “Capital gain”.
A partition deed may be executed where co-owners in the property agree to divide the ownership into a precise ratio. It happens in the case of joint-owned properties, and property acquired through partition is also exempt under the Income Tax Act, 1961.
As per The Hindu Succession Act, 1956, The members of the HUF may part with their share in the property only on dissolving the HUF of their father.
Partition is quite different from inheritance. A person acquiring property through the partition must have executed a written agreement between the partitioners, while in the case of inheritance, there may not be any formal agreement, and if any exists, it will be a relinquishment deed.
There are various other ways to transfer property, some of them are legal and some of them might be illegal, avoid the latter. Alright, we have been through a lot of discussions on how to transfer property; so far, we have discussed 6 effective ways to transfer property some of them are good ways to save taxes since capital gain taxes on property transfer are as high as 20% in India. You can plan and choose the best way that suits your circumstances to transfer the property. I hope you enjoyed reading it so far and hope you could make an informed decision out of it.