Introduction to Property Transfer in India
Property transfer is a key part of real estate transactions, either via sale, gifting, or other legal transfers of title. In India, the Transfer of Property Act of 1882 governs property transfers, and it is the law giving you the ability to transfer property and how property can lawfully be transferred. It governs who can transfer property, the eligibility of a transferring party, the legal processes, and legal requirements to transfer property. It is beneficial for buyers, sellers, investors or anyone involved in real estate of any kind to understand the rules involved in property transfers, to ensure compliance with the rules and safe practices in property transactions.
What Is Property Transfer?
Defining Property Transfer
Property transfer is a legal term referring to the process of transferring an ownership interest or any right in a property, such as land, a house and a shop, from one person to another. A property transfer can occur when someone sells, gives, leases, mortgages, or exchanges a specific property. For instance, selling an apartment worth ₹50,00,00 or giving a plot worth ₹30,00,000 to someone, like a family member, is a property transfer under the law.
Types of Property Transfers
The Transfer of Property Act provides for several ways to transfer property, including for example:
- Sale: the transfer of ownership of a property for a price, e.g. a villa worth ₹1,00,00,000.
- Gift: a transfer of property to another without receiving price, e.g. a flat worth ₹20,00,000 to a child.
- Lease: a transfer of the right to use a property for rent (the rent is neither a price nor a payment), e.g. leasing a shop worth ₹40,00,000 for ₹25,000 per month.
- Mortgage: the transfer to another of the property rights as security for a loan, e.g. mortgaging a house worth ₹60,00,000.
- Exchange: exchanging properties, e.g. exchanging another land worth ₹45,00,000 for a land of equal value.
Who Can Transfer Property?
Eligibility Under the Transfer of Property Act
Certain parties may transfer property under Section 7 of the Transfer of Property Act, 1882 if they are:
Owner of the Property
The main person who may transfer real property or, for example, a house, is legally the owner, as recorded in the title deed / Khatauni (which is common in Uttar Pradesh). For instance, if a person owns a house for ₹70,00,000, they may sell it, give it, lease it - as long as they had good title. If there were liens or disputes relating to ownership, then title is considered defective and cannot be transferred free from all liens or disputes (at least as owner), so the prospective seller should ensure ownership is free of disputes or liens title, by institutes like Bhulekh UP if it relates to properties in Uttar Pradesh.
Legal Heir / Successor
In terms of transfers of property made in relation to inheritance, legal heirs or successors, for example such as children or spouse, can transfer property of deceased owner following their death, but only where they have documents completed, for example, succession certificate or will. For example, legal heirs inheriting ₹40,00,000 mendh of ancestral land shall sell it in terms of their legal obligations under the Hindu Succession Act, 1956 or relevant personal laws.
Holders of Power of Attorney
A person who has been granted power of attorney (POA) by the owner can transfer property on behalf of the owner, in terms of the authority given by the POA. For example, a person could sell a ₹55,00,000 flat by using a registered POA if they are authorized as a signatory in the POA. It is essential that the POA specifies the right to transfer the property and is registered at the local sub-registrar.
Legal Guardians
For property owned by minors or persons determined to not have legal capacity (for example, persons that are mentally incapacitated), there is an appointed guardian who has the ability to transfer property after receiving permission from the court. For example, a guardian may sell a ₹25,00,000 property owned by a minor, to allow the minor to fund an education but they must first receive the Court's consent under the Guardians and Wards Act, 1890.
Companies or Legal Entities
If property owners are companies, a trust, or a society, they can transfer property through a representative that has the authority to do so if it is permitted in their governing document. For example, a company that owns a commercial building valued at ₹2,00,00,000 can sell it if it has a board resolution that states is it allowed.
Conditions for Transferring Property
Competency to Contract
Pursuant to section 11 of the Indian Contract Act, 1872, the transferor must be of sound mind, at least 18 years of age, and not otherwise disqualified by law (i.e., willful bankruptcy). For instance, a 25-year-old owner of a ₹30,00,000 plot of land may transfer ownership, while a minor may not without a guardian.
Clear Title
The transferor must have a clear and marketable title and must not have any encumbrances on the property (e.g. legal dispute, loans). A property worth ₹50,00,000 is in litigation therefore would not be transferrable until that litigation is resolved. You must conduct a complete title examination through land records or a lawyer.
Compliance with Law
Transfers must comply with relevant laws for the area, for example the Indian Registration Act, 1908 compels registration of sale or gifting deeds. For instance, selling a ₹60,00,000 condo would require the execution of the sale deed by the seller and seller's authentication and registration at the sub-registrars office, which may be around ₹50,000-1,00,000 stamp duty and fees.
Process of Transferring Property
You may follow this process in transferring the property.
Step 1: Confirm ownership
You must confirm the transferor's ownership of the property, by reviewing the land records or the title deeds. In Uttar Pradesh, you may check ownership on the Bhulekh UP platform. If the value of the plot is ₹40,00,000, you would check the Khatauni on https://upbhulekh.gov.in/ to verify the ownership name of the seller tied to that record to validate ownership as fraud must be detected in advance of the transfer to maintain sound creditor position.
Step 2: Draft the Legal Document
Draft an appropriate transfer document, either a sale deed, gift deed, or lease deed, with the assistance of a lawyer. If you are drafting a sale deed for a house for ₹1,00,00,000 the sale deed must include the property description, price, and names of the parties. Make sure it complies with state-specific laws on stamp duty.
Step 3: Pay the stamp duty and register fees
Pay the combination of stamp duty and registration fees based on the value of the property and the state-process followed. For example, in Uttar Pradesh the stamp duty for a sale is 7% (with ₹10,000 - 20,000 caps for certain occasions); so on a ₹50,00,000 property it would incur ₹3,50,000 in duty. Gift deeds to close relatives may incur a lower stamp duty, for example, 0.5%.
Step 4: Register the Transfer
At the sub-registrar's office in the jurisdiction where the property is located, document the transfer. For a flat worth ₹30,00,000, you and the buyer must present the sale deed, identity proof and proof of payment. The registration fees are usually 1% of the value of the property, but in Uttar Pradesh is capped at ₹30,000.
Step 5: Update Land Records
You can then update the mutation records (change of name in revenue records) with the local tehsil or online with Bhulekh UP. For example, you bought a plot for ₹25,00,000 and you will make a mutation application to show the name of the new owner and have all legal rights conferred.
Challenges in Property Transfer
Disputed Ownership
Transfers can be slowed down or even blocked by especially nasty complications if the title of the real property being transferred does not appear to be clear or has multiple claimants on it. A simple plot of ₹35,00,000, currently under a family dispute, will take at least a month for the right courts to give us a clearance and costs around ₹1,00,000-2,00,000 in legal fees. Make the necessary attempts to check whether the title is clear because this can mitigate the likelihood that the current owner's fraudulent mechanism can quickly remove you from ownership.
Non-Compliance with Laws
If a transfer is not registered or simply does not require stamp duty, then it is part of the estate of the previous owner. For example, if you are completing the purchase of a residential property ₹45,00,000 a month, but do not contemplate registering the transfer, the act of buying it is null and void. You take a serious risk of losing your capital outlay as a result. Engage the lawyer and register your transfer.
Fraudulent Transfers
Unethical vendors deliberately exercise the fraud of using fake Power-of-Attorneys (POA) or duplicate documents when completing property transfers. If you are about to acquire the ownership of a real property for around ₹60,00,000, verify the current owners POA before proceeding. You should particularly cross-reference the POA by approaching the sub-registrar for verification. Use Bhulekh UP to confirm ownership prior to completing the transfer to mitigate the possibility of being scammed.
Tips for a Smooth Property Transfer
Hire a Legal Expert
Use a real estate lawyer to draft documents, conduct due diligence on the title, and engage in other compliance practices. If you spend ₹20,000-50,000 on lawyers, and you are trading a real property for a value of ₹50,00,000, one mistake could wipe out everything that you have worked to pay for.
Conduct Due Diligence
Check for encumbrance, liens, partial ownership or disputes on your title through Bhulekh UP or have a professional complete an investigation into your title. The limited amount of time you spend for a search into the title of a commercial space worth ₹70,00,000 is approximately ₹10,000. It is just worth it to establish that it is clear.
Understand Tax Implications
There are tax implications on transfer of property including capital gains tax (12.5 percent on sale of property, but indexed for long term gains). So, the sale of an asset that costs ₹1,00,00,000 after 24 months might have tax implications of ₹10,00,000 assuming there are not any exemptions under Section 54. There may be some tax savings payments that can be avoided with professional tax advice.
Conclusion
In India, property is transferable by legal owners, legal heirs, executors who are holders of POA, guardians, and duly authorized representatives in accordance with the rules in Transfer of Property Act, 1882 as long as the transferors apply the capacity/rules of ownership, are using proper documents, correctly paid stamp duty and registered transfer, and maintained updated records. In particular, online information websites like the Bhulekh UP, become even more relevant to confirm ownership especially in Uttar Pradesh. It does not matter if a transferor has become the authorized party to transfer property with a plot of ₹30,00,000 or a fully constructed building with ₹2,00,00,000 of value the rules of who is able to transfer and the legal obligation of the parties to follow the rules of transfer is essential to the safe security and ultimately the success of real estate transactions.