Types of Deeds: Five Ways of Transferring or Acquiring Real Estate Property

Different types of deeds are used to transfer ownership of a property. These formal papers show that you own the property, which is essential to buying or selling a home. However, before you buy or sell a house, you should know the differences between the different types of deeds.

This is because each is used for various things and has different legal requirements. Knowing the difference will help you pick the will deed format that works best for you. Let’s understand the different types of deeds available for transferring real estate property.

Different Ways of Acquiring or Transferring Real Estate Property

Did you know that the Indian real estate market is expected to grow at a CAGR of 9.2% from 2023 to 2028? Yes, and it’s time for you to take advantage of it. The real estate business is expected to grow rapidly, which will involve numerous legal aspects. When transferring your property, you must be well aware of all legal facts. They notify the true owner when someone transfers or buys real estate. There are five usual ways, and each one needs its own paperwork and law compliance:

1. By Purchasing the Property (1 – Sale Deed)

A sale deed is the most common way to transfer property ownership to someone else. If you own property and want to sell it for a certain amount, you can execute a sale deed by following a perfect will deed format.

You must register a sale deed or transfer deed. The Sub-Registrar’s office registers the sale deed. Then, the property goes to the new owner. When you register, you must pay a fee and stamp tax. Fees may vary by state.

Implications for Taxes

• If you sell the land, you must pay taxes on the capital gains.
• Please be aware that the Registrar of Properties will inform the Income Tax officials about any purchases or sales of real estate worth more than ₹30 lakh.
• The minimum amount required to buy or sell real estate with a PAN has increased from ₹5 lakh to ₹10 lakh.
• If the house you want to purchase costs ₹50 lakh or more, you must pay 1% TDS.
• If you are a buyer of an Under-Construction home, the tax breaks you can get may be different.

2. Through GIFTS (2 – Gift Deed)

When someone gifts you money, a house, shares, jewellery, or anything else, you don’t have to pay for it. This is called a gift deed. It’s just an asset you get without paying for it, and it becomes a capital asset for the recipient. The gift deed can be cash, movable property, or immovable property.

If the gift is for real estate, Section 17 of the Registration Act, 1908, says the deed must be registered. So, these kinds of gifts can’t be taken back. After giving something as a gift, it automatically belongs to the person who received it, and you can’t take it back or even ask for it back. Therefore, it is advisable to carefully review the will deed format before proceeding.

Implications of Taxes

• If you get a gift from a family member, you won’t have to pay any taxes. A gift from someone who is not a relative is not taxed up to ₹50,000. This applies to the stamp duty value of fixed Property or the fair market value of mobile Property.
• According to the rules governing taxing gifts, any gift given to a couple as a wedding present is not subject to income tax.
• Gifts that come from a will or an inheritance are not taxable.
• If someone gives you a house through a registered gift deed that includes your PAN, you can claim the value of the gift as Exempted Income on your ITR. This is not meant to attract attention from income tax officials later.

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3. Through SETTLEMENT (Or) Partition of Properties (3 – Relinquishment Deed / Release Deed)

A relinquishment deed is a formal document that someone signs when giving up their rights to or owning a property. This document or will deed format lets a person give their share of a property to a family member or co-owner. This method typically divides property among family members, especially when someone dies.

The Act won’t be acceptable if someone is forced to do it. There is a fee to record the relinquishment deed and pay any due stamp tax. Besides, you only need to pay stamp tax on the part of the property you are giving up, not on the entire property amount. Most of the time, the fee is the same as for a Gift Deed.

Implications of Taxes

• You have to pay tax on your capital gains, but only on the part of the land that you give up.
• The property must be documented in writing and include the appropriate stamp fee.
• Register the contract with the sub-registrar’s office that handles the land.
• The person giving up the property should sign the deed, and two separate people should also sign it.

4. Through Relinquishment of Ownership in a Property (4 – Partition Deed / Settlement Deed)

A Settlement Deed is a legal document that divides property fairly among family members or others. The will deed format ensures that no problems arise during the transfer of ownership. A settlement contract is a formal document that defines how claimants divide property. Besides, families often use this document to avoid disputes in the future.

It must have the proper paperwork, be registered, and follow all tax laws to be legally enforceable. The deed of settlement is subject to stamp tax and must be registered. When you buy a house, you must pay stamp tax based on its market value, just like when you sell a home. Exceptions can happen if the deal benefits family members.

Implications of Taxes

• People who agree to a family settlement or partition won’t have to pay capital gains tax on the money they make from selling their share of the Property as long as there is no transfer (resale).
• You don’t have to pay capital gains tax if you settle with a close family member.
• The gift tax does not apply to transactions between blood relatives.
• The receiver must pay for stamp duty and registration fees.

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5. Through inheritance or WILL (5 – Inheritance / WILL Deed)

There is no inheritance tax on inheriting immovable property. Additionally, it encompasses a variety of inherited assets. These assets include family land, mutual funds, cash, and other movable items. Heirs can receive them through a Will or by succession. 

However, if the property/possessions you inherited bring in money, like rent or interest, you must report it in your income tax return and pay taxes.

Implications of Taxes

• There are no tax implications when you inherit property or acquire it via a will. However, if you decide to sell the property, the inheritor must follow standard capital gain tax rules.
• To figure out capital gain, you can use the cost to the former owner as the purchase cost of the property, even though the inheritor doesn’t pay anything for it.
• The year the previous owner bought it is also considered when determining the purchase cost.

Conclusion

For safe property transactions, it’s essential to understand the five methods of transferring real estate and the various types of deeds used for each. Besides, to be a rightful property owner and protect your investment, you must know how this process works and the will deed format. Choosing the right deed clarifies the law, protects ownership, and simplifies the transfer of property rights.

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