Young couples do not think about a home they want to buy as a place to spend their retirement, they think of a home bought as an investment made. Now that banks and other independent agenies are giving credit on easy terms, people even in their mid-to-late 20s and early 30s plan the purchase of a house.
Besides, the government'stax concessions have made home loans a good option. When a home is an investment proposition, knowledge of the key element of buying and selling is essential. Here are some points to ponder over of potential purchasers. All immovable properties can be transferred by sale, will, or as a gift. Before purchasing an immovable property, one should first study how the previous owner acquired the property. The basic thumb rule while buying property is to fully satisfy oneself by getting all legal documents examined by a lawyer before finalising the deal, do not even fall in love with a property you are intended to buy. There are number of legal and taxation issues related to property purchase which one must understand thoroughly before taking any decision. Buyer must insist on seeing the original Sale Deed. Sometimes the seller must have taken a loan by pledging the original Deed. Also one should enquire for previous Sale Deed of the property available with the seller to establish chain of documents in case more then one person owns the property. Ensure that all the legal owners sign the Deed or give release certificate stating that they will have no legal claim on the said property in future. One should also find out whether the land on which the building is constructed or to be constructed is free hold or lease hold. The lease hold property is generally given on lease for 99 years. In this case, the ownership of land is not transferred. When the lease time expires, the owner can take back the land along with the apartment building constructed on it.
The first and the most vital question is the name in which the property is to be purchased. This is particularly important from the point of view of taxation. If you make investment in the property in the name of some family member and later on you find that your decision was wrong, then the only way to rectify your mistake is to execute a fresh Conveyance Deed in the name of another family member. Therefore various taxation issues, particularly depending on the income tax liability, should be taken in to account before deciding under whose name the property should be bought. While buying property in joint names, special care should be taken to clearly define the percentage the ownership of each co-owner to avoid future complication. From the point of view of taxation, each co-owner should pool the money pro rata to the percentage of ownership. In case some family members do not have sufficient resources to buy the property, they can take loan from other family members.
Whenever you buy a property, it is important to verify the legal title of the owner by checking the property paper chain. It is advisable to investigate the title for the past 30 years upto the original, which ever is later, these documents are called link documents. Documents like Will, Mutation and Probate can satisfy oneself about the validity of the legal title of the seller.
Conveyance Deed/ General Power of Attorney (GPA)
During the process of property purchase one should see whether legally valid conveyance date will be executed by the seller or whether the property will be sold to Power of Attorney. In case the property is Power of Attorney based, then as a buyer you should take care to insure that there is a valid agreement to sale along with a irrevocable Power of Attorney and Will.
While buying a property ensure that till the date of your purchase, all the previous dues relating to the said property have been cleared by the owner/seller. It is better to mention in the Sale Deed that the seller will be responsible for all dues in respect of the property including house tax, maintenance, electricity, water bill etc. up to the date of sale.
Short Term and Long Term Capital Gain Tax
In case of sale of property with in a period of 36 months from the acquisition, the gain arising there from is treated as short term capital gain and the same is liable a tax under the Act. Whereas if the property as been held for more than 36 months, then the gain arising there from the sale of the property as long term capital gain and is liable to tax under the Act. Property buyers can minimise their long-term capital gain tax liability by either investing in capital gain bonds or by investing in residential property under the provision of section 54, 54 F and 54 EC of the act. On the other hand, shot term capital gain can be adjusted against short term capital losses and such investigation are to be made within six months from the date of transfer or before the due date for filling the return, whichever is earlier. In case of resident property, certain concessions are available under the Act with regard to profit on sale of residential property. Therefore, the concession is available by way of exemption from income tax on capital gains arising on transfer of a resident property and the said exemptions are provided in are section 54 and 53 EC of the act. However the exemption is available on re-investment of the capital gains specified assets by the assesses and such exemption under section. 54 of the Act is available to an assessee who is either an individual or a Hindu Undivided Family (HUF) and under section 54 EC of the Act is available to any assesses. Also for such a concession other residential property should be along-term capital asset it should be held by the assesses for a period of 36 months, prior to the date of transfer.
The land property need to be registered in a sub-registrar's office, after preparing the Title Deed including all the relevant information. One can get the Title Deed written by a licensed documents writer. Make sure all the details are correct. If there is some inaccuracy in the documents after registration, secondary documents with the correct details have to be registered. Make sure that the Deed is registered within the time limit mentioned in the agreement. Original Title Deed, previous deeds, property/ house tax, receipts, tolerance plan (optional) and two witnesses are needed to register the property. In some transaction, PAN card or Form 16A may be required..
While buying property, one should ensure that it has been mutated as per the municipality rules in the name of the vendor. This would ensure that he becomes the legal owner in the records of the municipality. Remember that the whole legal procedure of buying property will be simply incomplete if the name of the new owner is not included in the village record.
(The author can be contacted at M-8, Green Park Ext., New Delhi-16 ,E-mail [email protected])