Buying a property is not just about paying the money and taking possession of the unit. The process and the documentation involved in the transaction, is complicated and is often beyond the comprehension of a layman. Moreover, not everyone will be conversant with the various laws, relating to acquisition of property. As you are putting your life savings in buying the property, you should take legal opinion for the process, to safeguard your interest.
Importance of title and marketability of the property
It is very important for the buyer to verify that the seller has a good title in the property. The matter of title is so complicated that the real estate regulations require a developer to buy a title insurance, with respect to the property that he is developing, in order to secure the buyers against any claim or defect in the title of the property. Defects in the title may be in the form of the legal status/nature of the land on which the property has been constructed or existing easement rights on the property which one would not know, unless a detailed investigation is carried out. In case the property has been mortgaged by depositing the original documents, a buyer may not know if the original documents have been handed over to him, as it is not difficult for people to get copies of documents made in such a way that they look like the original.
To avoid any litigation with respect to the property which you are buying, it is important to ascertain whether the developer has duly complied with all the laws and procedures, related to the construction of the property. There are many properties that have not received occupancy certificates, due to non-compliance of some condition imposed at the time of obtaining approvals for the plan from the local authorities.
See also: Key legal checklist for buying a property
Real estate purchase agreement and other documents
Buying a property involves studying various documents, as well as preparing many documents. Only a person who is trained to interpret legal documents, can help the buyer to identify any restrictive clause in the agreements of earlier purchasers. This may be in relation to the land, as the property may have been constructed on a freehold land, where the absolute title is transferred to the buyer. The land may have also been acquired under a lease, where the ownership of the land eventually passes on to the original owner, at the end of the tenure of the lease.
A majority of property buyers do not take the help of lawyers for drafting of the purchase agreement and instead, ask the broker to help them get the agreement done. The brokers, in most of the cases, have a standard agreement, in which they merely replace the details of the property and the buyer and seller. They seldom realise that there may be special circumstances, which warrant that the agreement should be drafted on some specific lines – for example, when the property is sold by a legal heir or an executor of a will.
In case you are taking a home loan, a legal scrutiny of the agreement may help you understand the conditions, under which you are taking the home loan. These may include clauses pertaining to charges for prepayment or transfer of the home loan, charges for shifting of the home loan from floating to fixed rate and vice-versa, or the circumstances under which the lender can take possession of the property.
Stamp duty and income tax implications of property purchase
For all transactions of immovable property, the purchaser has to pay stamp duty on the market value of the property. Every state has its own stamp duty ready reckoner rate, popularly known as circle rate. The rates specified in the stamp duty reckoner, are the base rate at which stamp duty for a property has to be paid. Nevertheless, certain deductions are allowed from the market value, based on the age of the property, whether it is on leasehold land or freehold land, etc. Likewise, deductions are also allowed, in case the building does not have a lift. A lawyer is in a better position to guide you on such matters, to ensure that you do not land up paying higher stamp duty, than what is legitimately due for such transactions.
As per Section 50C of the Income Tax Act, where the stamp duty ready reckoner valuation is higher than the agreement value, the seller is presumed to have received the consideration as stated in the stamp duty ready reckoner and is required to pay capital gains tax accordingly, unless the difference is not more than five per cent over the agreement value. Likewise, the buyer is also required to pay tax under Section 56 (2) (x) on the difference, which is higher of Rs 50,000 or 105 per cent of the agreement value and stamp duty valuation.
Only a person, who knows all the laws pertaining to purchase of property, can help you save money, as well as safeguard your interest in the property. Ideally, property seekers should appoint a firm of solicitors, rather than just a lawyer. The one or two per cent of the cost of the property that you spend towards this, will help you take the right decisions while purchasing a property.
(The author is a tax and investment expert, with 35 years’ experience)
Balwant Jain is a tax and investment expert. He is a rank holder CA, CS of 1983 batch and a Certified Financial Planner (CFP). He has varied experience in providing his own consultancy, as well as working as the chief financial officer, as well as a company secretary. He has been regularly contributing articles to leading business and mainline dailies, as well as electronic media. He regularly appears on business channels like Zee Business and CNBC Awaaz, as a personal finance and taxation expert. He has also been a visiting faculty of NMIMS (Narsee Monjee Institute of Management Studies), Mumbai. He also regularly conducts workshops on various subjects of investments and taxation.
Twitter: https://twitter.com/Jainbalwant
Email: [email protected]
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