Co-owners shares should be specified in sale deed

Property can be bought and owned jointly by more than one person. There are some legal and financial implications in such a case that need to be taken care of so as to avoid disputes.

One of the most common reasons for owning property jointly is financial. People pool in funds to buy a property.

A common example of this is purchase of property by husband and wife. By clubbing their incomes, they are also eligible for a higher loan amount. The couple having separate sources of income may pool in their resources to buy a home.

When two or more people buy a property but do not specifically mention the share that each has in the property, a ‘tenancy-in-common’ is created. All the coowners can use the entire property and every co-owner is deemed to be having an equal share in it. After the death of one of the co-owners, the interest in the house does not pass on to the other co-owners but to the legal heir or a person named in the Will of the deceased, who will then become a ‘tenant-in-common’ with the surviving co-owners.

In case the property is owned by two or more persons in equal shares, it is referred to as a joint tenancy. In case one of the joint tenants expires, his interest automatically passes on to the surviving joint tenant(s).

In case a property is jointly owned by two or more persons, the fact should be specifically mentioned in the sale deed. A property can be acquired by two or more persons jointly by pooling in their resources. Unless there is a contract to the contrary between the parties, co-owners will have a share in the property that is proportionate to the funds contributed by them to buy it.

The names of the co-owners, along with their respective shares of joint ownership or the ownership in the property should be clearly and specifically mentioned. As such, in case of any income from the property or any gains received on the transfer of such a property, the returns can be divided in the respective proportions of ownership.

Under the Transfer of Property Act, every joint or co-owner has a proprietary right of the entire property. Accordingly, a sale has to be with the consent of all coowners involved. Only in certain cases, the co-owners get exclusive rights to certain parts of the property, which one can transfer. In case of a house, consent has to be sought from all co-owners owning the house.

A co-owner is entitled to right of possession, use and to dispose off his share in the property if it is clearly stated in the deed. In case a co-owner is deprived of his property, he has a right to be put back in possession.

It is to be noted that mere co-ownership of property without reference to any specified extent would imply that the co-owners have equal interests in the property. For any specific, pre-agreed shares, the details have to specifically be mentioned in the property documents. The sale deed can specify the shares of the coowners – the proportion of ownership among the individuals.

In case one wishes to add a co-owner at a later stage he can execute a sale deed. He can sell a portion of the property to the other person and then get the sale deed registered as a co-owner of the property by paying the necessary charges. This will entail payment of stamp duty.

Alternatively, one can execute a gift deed. He will need to make a gift deed and get it executed on a stamp paper, and register it at the registrar’s office.

In case of co-ownership, transfer of property is easy as if one of the partners die. The surviving spouse then becomes the sole owner of the house.

Tax benefits

Both the owners can claim tax benefits. Both can claim deductions of up to Rs 1.50 lakh against the interest paid on the home loan. They can also claim tax benefits of up to Rs 1 lakh against the principal amount repaid under Section 80C.

If the property is sold, the co-owners will have to pay tax on the capital gains earned by them. Section 54F of the Income Tax Act provides that if a taxpayer invests the sale proceeds received from the sale of any capital asset in buying a residential property, the long-term capital gains on sale of the property will be exempt. In order to claim this exemption, the house should be purchased by the taxpayer. However, it does not stipulate that the house should be purchased in the name of the taxpayer only. Including the spouse’s name as co-owner will not impact the exemption granted by the Act.

Source: Times Property, The Times of India, Bangalore

Stamp Duty Laws

What is stamp duty? Why should it be paid and by when?
It is a tax and must be paid in full and on time. A delay attracts penalty at 2% per month, subject to maximum penalty of 200% of the deficit amount of stamp duty. Documents lodged with the sub-registrar/superintendent of stamps prior to any amnesty scheme attract a lump sum reduced penalty. Documents not properly stamped are not admitted in court as evidence. It is payable before execution of the document or on the day of execution of document or on the next working day. Execution of a document means putting signatures on the instrument by persons party to the document.

Who pays?
In the absence of an agreement to the contrary, the purchaser/transferee has to pay or in case of property exchange, both parties have to bear it equally.

On what instruments does stamp duty have to be paid?
Instruments include every document by which any right or liability is or purports to be created, transferred, limited, extended, extinguished or recorded but does not include a bill of exchange, cheque, promissory note, bill of lading, letter of credit, policy of insurance, transfer of shares, debentures proxy and receipt (which is charged under Indian Stamp Act, 1899). Except transfer by will (or by original nomination in a co-operative society) all transfer documents including agreements to sell, conveyance deed, gift deed, mortgage deed, exchange deed, deed of partition, power of attorneys, leave and licence agreement, agreement of tenancy, lease deeds, power of attorney to sell for consideration etc. have to be properly stamped. When a nominee transfers the flat subsequently in the name of legal heir, such transfer also requires stamp duty.

If you have purchased a flat in a co-operative society on or after December 10 1985, you have to pay stamp duty on market value as per the Ready Reckoner, issued every year in January.

This is a public document, available in any law bookshop. Market value is the value as worked out as per the Stamp Duty Ready Reckoner or the consideration stated in the instrument, whichever is higher. As per a new amendment in the Income Tax act, market value for the purpose of capital gain tax is the same as the market value for stamp duty payment.

How is a flat defined?
A flat means a separate and self-contained set of premises used or intended to be used for residence, or office, or showroom, or shop or godown or for carrying on any industry or business (and includes a garage), the premises forming part of a building and includes an apartment.

In whose name is the stamp paper required to be purchased?
Stamp papers are to be purchased in the name of one of the parties to the document, otherwise such agreement will be treated as if no stamp paper was used. However, it will not make the agreement invalid and can be enforced in Law if proper duty is paid subsequently. Stamp paper is valid for six months from the date of purchase.

What is a revenue stamp?
It is a tax of Re.1 in the form of revenue stamp, which should be affixed on receipt for any money or other property, the amount or value of which exceeds Rs. 5,000.

Is stamp duty payable on the instrument or transaction?
It is payable on instruments. If any information essential for working out stamp duty is missing, the valuation officer can call for it. Information such as the Carpet or Built-up area, number of floors in the building, year of construction, name of Division/Village and C.S./C.T.S. number of plot of land, must be recorded in the agreement for quicker response.

What is the rate of stamp duty?
Stamp duty on non-residential properties whether in a co- operative society or not is at a flat rate of 5% of the market value. Stamp duty on residential flats in a housing society and buildings covered under Article 25(d) of Schedule I of Bombay Stamp Act. 1958, attracts concessional rates depending upon its market value as follows: Upto Rs. 1,00,000 stamp duty is nil Between Rs. 1,00,001 to Rs.2,50,000, it is 0.5% of the value. Between Rs. 2,50,001 to Rs.5,00,000 Stamp duty is Rs. 1,250 + 3% of the value above Rs.2,50,000. Above Rs.5,00,000 stamp duty is Rs.8,750 + 5% of the value above Rs.5,00,000.

What precautions should one take to avoid practical difficulties later?
Generally one copy of the exchange agreement is made and registered and then there are various practical problems.

The following precautions should be taken to avoid complications:

 – Assuming there is one ‘Flat-A’ owned by ‘Person AA’ and he wants to exchange it with ‘Flat-B’ owned by ‘Person BB’. In the Exchange Agreement there should be a clause where it states that original agreement will be considered original agreement for ‘Flat-A’ and will remain with it’s new owner ‘Person BB’ and second copy will be considered original agreement for ‘Flat-B’ and will remain with its new owner ‘Person AA’.

 – Agreements should be made in duplicate. The original agreement will be charged with full stamp duty and second copy will be charged only with Rs.20.

  – Both agreements must be registered. The original agreement will be charged full registration fees and second copy will be charged a nominal amount.

  – Both the persons must keep their respective copies and will be free from each other in all respects.