Here’s a look at some legal formalities you will have to complete before moving into your home
Vimal Punmiya
After having got the home loan sanctioned from the bank, it’s time you look at documents you will be required to submit before moving into the apartment you’ve decided to purchase.
We list some of them here. Stamp duty Stamp duty is a type of tax that needs to be paid to the State Government on transfer, i.e. sale or purchase of an immovable property, through the execution of an agreement. Let’s try and simplify issues pertaining to stamp duty and the related documentation required for the same. Execution of the instrument: When a seller and buyer sign papers pertaining to the sale of an immovable property, (like a flat or apartment), whereby the rights of the seller are transferred to the purchaser, in such a case, the instrument is said to have been executed. Who has to pay stamp duty: Stamp duty is payable on the agreement through which the immovable property is sold or transferred. Usually the purchaser pays the stamp duty.
Market value of the property: Though stamp duty is payable on the agreement, the same is calculated based on the value of the immovable property such as a flat. Stamp duty is payable either on the market or agreement value, whichever is higher. The agreement value refers to the value, consideration or price mentioned in the agreement. This is the amount the purchaser will pay for the property. The market value, on the other hand, refers to the price the property could fetch if it were to be sold in the open market.
The market value is calculated based on a formula stipulated by the stamp duty authorities.
Payment of stamp duty: After calculating the stamp duty in accordance with the formula prescribed by the stamp duty authorities, the same can be paid in any bank that has been authorised by the state government to collect stamp duty.
You will have to request your bank for a pay order to pay the stamp duty. The bank will give you a confirmation of the payment. You will then need to give the original agreement to the bank.
Checklist for payment of stamp duty: The pay order should be drawn in favour of that bank where stamp duty will be paid. For e.g. if the stamp duty is being paid in XYZ bank, then the pay order will be drawn in favour of `XYZ a/c Stamp Duty’.
Do not sign the agreement (either the seller or the buyer) until the stamp duty is paid. Once the pay order of the stamp duty amount is given to the authorised bank, the bank will frank the document. This means that the bank will put the seal of the amount paid on the agreement, indicating that the stamp duty has been paid. The parties to the agreement should retain the original receipt issued by the bank.
This will be required when registering the agreement.
Risks of not paying stamp duty: You may be tempted to ask, what happens if I do not pay stamp duty?
The downside risks of not paying stamp duty on the executed transaction may be rather serious, so ensure that this leg of the transaction is executed properly.
The agreement for the purchase or sale of immovable property should be carefully stamped i.e. full stamp duty should be paid on such agreements. If the stamp duty is not properly paid, it will lead to a number of difficulties later such as: The agreement will not be accepted at the time of registration. The purchaser will be liable to pay a penalty for such nonpayment.
The title of the purchaser will not be clear and the courts will not accept such agreements as evidence in case of litigation.
Rates payable on stamp duty: Land is a state subject and hence stamp duty also falls within the state’s jurisdiction. Thus, different states prescribe different stamp duty rates. Stamp duty is payable in the state where the immovable property is located.
Registration When the purchase/sale of the immovable property is completed after paying the applicable stamp duty and both parties sign on the agreement, the agreement should then be furnished to the registration authorities for registration. The registration authorities will verify the agreement, take the signature of the purchaser, seller and witnesses and record the contents of the agreement. This way, the authorities give legal evidence of the transaction of purchase/sale of the immovable property that has been entered into between the purchaser and seller.
Advantages of registration: By registering the agreement, both the buyer and the seller stand to benefit in the following ways: The title of the purchaser becomes clear and the same can be admitted in the court as evidence, in case of any litigation. Registering the agreements with the registration authorities automatically makes the government a witness to the legality of transaction. If the owner wants to take a loan from a bank against the property, then the bank generally insists on examining the registered agreements and may not give a loan on unregistered agreements.
Place of registration: In India, the registration usually takes place in the office of the Sub-Registrar, in whose jurisdiction the immovable property is situated.
Registration fees: Registration fees refer to those fees charged by the Government for registering the agreement. Such fees are determined by the Government and the same should be paid through a pay order at the time of registration of the agreement.
Checklist for registration: Each state has different rules for registration. However, the following documents are essential to have: Prescribed registration forms duly filled and signed by both parties to the agreement, i.e. the purchaser and seller. Pay order of the amount of registration fees. Original agreement duly stamped with the amount of stamp duty paid and signed by both the parties, i.e. the purchaser and seller. Original receipt of the stamp duty paid.
Along with the above papers, the parties should also arrange for the following documents relating to the immovable property which has been purchased / sold: The assessment bill from the municipality or any other municipal authorities certificate as may be applicable from state to state. Certificate from the society giving details of the property such as the area, year of construction, number of lifts, city survey number, etc., duly signed by the secretary / chairman of the society. `No objection’ certificate from the society stating that the society has no objection if the seller sells the immovable property to the purchaser and that the society has no objection in admitting the new purchaser as a member of the society.
`No dues’ certificate from the society that all the dues, outgoing and maintenance and other charges have been paid by the seller as on the date of the sale.
Any other details, documents or evidences as may be required or applicable from state to state.
If the purchaser or seller are being represented by some third person for the purpose of registration, then a special power of attorney in favour of such a third person which is properly signed, stamped and notarised should also be furnished to the registering authorities.
You may also take two additional people along to the registering authorities.
These individuals can sign as witnesses at the time of registration. Bye-laws of a cooperative society Bye-laws simply mean those rules and regulations that are framed for the internal working of the co-operative society. These are the rules and regulations, which the society has to follow to conduct its day-to-day activities.
These are laws that must be adhered to while making decisions pertaining to the society. For instance, carrying out major repairs or installation of lifts. The members of the society are also obliged to adhere to these bye-laws of the society.
Condominium rules When there are less then 10 members occupying the premises and where a cooperative housing society cannot be formed, a condominium is formed. When an immovable property is transferred in a co-operative housing society, registration is not compulsory. However, in case where an immovable property is transferred in a condominium, then registration is compulsory.
Each unit owner in a condominium has to follow the bye-laws and rules and regulations framed for such condominiums. Property ownership A person who purchases or holds immovable property in India is governed by various laws and acts. His/her rights, duties, obligations and liabilities must be in accordance with such laws and acts.
Transfer of Property Act 1882: This act contains various provisions, sections and rules under which the rights of the owner of the immovable property are governed.
Indian Stamp Act, 1899: These acts are important as under the said acts, stamp duty rates are prescribed for various documents, including purchase of immovable property. Any person who wants to purchase immovable property should ensure that the stamp duty is paid in accordance with the provisions of the act.
Income Tax Act, 1961: Any person purchasing or selling immovable property should also ensure that the same is done keeping in mind the provisions of Income Tax Act, especially those pertaining to capital gains tax.
Indian Registration Act 1908: The Indian Registration Act 1908 lays down different categories of documents for which registration is compulsory. According to section 17 the following transactions of immovable properties are required to be compulsorily registered.
Instruments of gift of immovable property Lease of immovable property Instruments which create or extinguish any right or title to or in an immovable property.
(The author is a Chartered Accountant with Vimal Punmiya and Co. The article was published in Knight Frank’s guide book titled Real Investment: A real estate investment guide for India )
Courtesy: HT Estates 20th Feb 2010
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