The transfer of an immovable property can be by various modes including sale deed, release, gift deed, family arrangement. The most conventional and popular mode of transfer of immovable property is Deed of Conveyance, which is a complete contract whereby the Vendor transfers immovable property in favour of the Purchaser for consideration. The stamp duty payable on Deed of Conveyance is on the higher end compared to stamp duty levied on other instruments of transfer. Certain instruments of transfer of immovable property attract lesser stamp duty under the Maharashtra Stamp Act, 1958 as briefly explained below.
Deed of Conveyance
A conveyance is complete document executed between any two persons for a consideration agreed upon by them. After execution and registration of conveyance, the property vests with the Purchaser forever. Typically a conveyance or sale deed is executed for transfer of land, Deed of Transfer is for sale of flat in a building.
Stamp Duty: Within limits of Municipal Corporation, stamp duty is at the rate of 5% of market value.
Benefits: The parties to the conveyance can be complete strangers, partnership firm, body corporates or any person or entity.
Exchange
An exchange is a mutual transfer of ownership of one thing for another.
For instance:
A wants to buy a flat in another building by selling the flat which he presently resides.
B also desires to sell his flat and buy another one which is near his family members.
B’s flat suits A’s requirements and A’s flat is near B’s relative, which makes it suitable for B to reside.
If price of A’s flat is higher than price of B’s flat then, B can pay monetary consideration for that differential price, however money alone cannot be a consideration in an exchange.
A can execute a Deed of Transfer for sale of A’s Flat to B, similarly B can execute a separate Deed of Transfer for sale of B’s flat in favour of A. Since there are two separate instruments of transfer, stamp duty @5% will be required to be paid on each of Deed of Transfers along with separate registration charges. However, if A and B mutually agree to sell their respective flats to each other under only one instrument of transfer called ‘Deed of Exchange’ then, as per the Act, stamp duty will be payable only on market value of B’s flat; assuming it is of greater value than A’s flat.
Neither A nor B has to pay any monetary consideration, except differential amount if any, since the exchange takes place in consideration of ownership of their respective flats.
Stamp Duty: Stamp duty rate applicable on Deed of Exchange is same as that levied on conveyance, however, for exchange, the stamp duty will not be payable on aggregate of value of both properties but only on market value of property having greatest value.
Advantages: Instead of paying stamp duty on two different instruments, stamp duty is payable only on one instrument. By paying stamp duty only on one transaction, two properties change hands. Both parties get their desired property by paying discounted stamp duty. Since consideration is not required to be paid, one does not need to arrange for funds.
Disadvantages: Biggest disadvantage in exchange is that you can only transact with two properties values whereof are same or almost same with a small difference. Since there is only one instrument which is executed and registered, only one party can keep original document, other party can only get a certified copy of registered Deed of Exchange obtained from the concerned sub-registrar’s office, unless in rare circumstances parties decide to execute two deeds.
Gift
Gift of immovable property should be made voluntarily and without consideration. Usually properties are gifted to family members out of natural love and affection. The one who gifts his property to another is called “Donor” and the one who accepts, is “Donee”. Under law, the gift deed requires mandatory attestation by two witnesses, each witnessing signing of gift deed by Donor. The gift deed also requires mandatory registration under registration act.
Stamp Duty: If a gift is executed between family members being husband, wife, brother, or sister of donor or any lineal ascendant or descendant of donor, then stamp duty is 3% on market value of property.
Additionally, If residential and agricultural property is gifted to husband, wife, son, daughter, grandson, grand-daughter, wife of deceased son, then stamp duty payable is only Rs.200/-.
Advantages: An elderly person may prefer to execute and register gift deed instead of making a will to ensure there is no dispute or challenge to the will after their death. A person can see transfer take place in front of their eyes after execution and registration of gift deed. However, property disposal under a will can take place only after death of person making a will. Gift Deed is only to be registered and hence is a time saving exercise compared to a will where obtaining a probate thereof may be mandatory and involves complexities related to court procedures. The probate of a Will (or a Letters of Administration in case there is no Will) is an expensive affair as compared to say a gift of residential property where the stamp duty payable is only Rs. 200/- as stated above.
Disadvantages: The Gift Deed executed in favour of family member can be challenged by another member of the family, who is displeased by it, on various counts including age and mental state of donor. In unfortunate cases once parents gift their properties to their children, the children do not look after their old parents.
Release
When a person dies intestate and his legal heirs acquire the property as per succession, the legal heirs with undivided share in the property may decide to relinquish their share for a consideration or without consideration. It is necessary that parties to such release deed must be co-owners. A relinquishment of share by a co-owner in favour of a third person, not having any share in the property, cannot be considered a release deed. Since the release deed involves extinguishment of right in property, it’s registration is mandatory.
Stamp Duty: In case of renouncement by legal heirs of ancestral property stamp duty payable is Rs.200/- and in any other case stamp duty payable on conveyance is applicable on release deed.
Advantages: Since the stamp duty payable on release deed is only Rs.200/- it is an easier way to renounce rights of legal heirs on an ancestral property to avoid future disputes. For sale of ancestral property having many legal heirs, registration and execution of release deed is an ideal solution to perfect the title of legal heir who intends to own it absolutely and sell it further.
Disadvantages: The stamp duty of Rs.200/- is applicable only in a case where property renounced by legal heir is an ancestral property. For non-ancestral property, the stamp duty levied is as high as conveyance, in which case release deed has no special benefits. Gift deed can be executed in favour of any person not having co-ownership in the property, however, release can be executed only in favour of person having share in the property.
Family Settlement
A family settlement can be oral, in which case, there is no document so there is no question of stamp duty and registration. By numerous judgments, it is now a settled position of law that, a Family Settlement even when it has been reduced to writing, is not required to be registered, provided it is only recording the terms already agreed between the parties. There is no requirement of payment of stamp duty in such a case. If a Family Settlement includes recitals and terms of family arrangement, then it would be required to be registered and accordingly stamp duty payable would also require to be computed. However, Hon’ble Supreme Court, has set out following three requisites which constitutes family settlement:
Arrangement between members of a family and for the benefit of the family;
The object should be to compromise or resolve disputes for preserving family property, peace and security and to avoid litigation;
The consideration should be to ensure amity and good will amongst the relations.
Stamp Duty: If a family arrangement takes place and parties act on it and thereafter a document of family settlement is made only for the purpose of record and information, then such a document of family settlement does not require registration and no stamp duty is prescribed to be paid thereon.
Advantages: Family Settlement can be oral in which case registration is not required and as stated in the example above there is no requirement of payment of stamp duty on it.
Disadvantages: An unregistered and unstamped family settlement, though a valid document in the eyes of law, may not be sufficient document to prove title to the property. Usually, a third party who desires to purchase a property from a legal heir who gets the property under such family arrangement, may insist on release deeds to be executed by other family members. However, years after a family settlement, when there arises a requirement for release deed, the original parties to such family settlement may not be alive, to execute such release in order to satisfy the purchaser.
Keep in mind that apart from stamp duty stated as above, there is also a surcharge at the rate of 1% over and above applicable stamp duty as per the Act, on instruments of sale and gift in Brihan Mumbai Municipal Corporation and certain areas covered under Vital Important Urban Transport Projects. Similarly, in cities like Pune and Nagpur a similar metro cess of 1% is applicable. Also, for sale and gift of properties in Maharashtra, within Municipal Corporation area (except Mumbai Municipal Corporation) 1% local body tax is payable.
As per the Maharashtra Stamp Act, stamp duty rate is applicable on market value which is the prevalent rates in market for the property or the consideration agreed in the document, whichever is higher. So even in cases where the consideration is lower than ready reckoner rates, the stamp duty is payable on ready reckoner rate being higher.
The author is an Advocate practicing in Real Estate. Views are personal.