If it is a sale deed consideration amount then the capital gains tax will be attracted.
In settlement deed It cannot be a sale consideration. In my opinion he may have to pay income tax, your auditor will be able to guide you in this properly .
Transfer of property through settlement deed for a consideration
My father wants to purchase the property (in Chennai) from his brother and is willing to pay a consideration for the same. Can this transfer of ownership be done through a settlement deed and avail the benefit of nominal stamp duty? In that case, can my uncle show the consideration received as a capital gain?
Asked 7 years ago in Property Law
Religion: Hindu
5 Answers
The intention is to avail any stamp duty exemption possible within the ambit of law while also complying with any tax liabilities with regards to Long Term Capital gains. Request appropriate guidance.
Asked 7 years ago
Can the transfer of ownership in this case be done as a settlement? And the consideration be shown as his long term capital gain?
Asked 7 years ago
The capital gains benefits can be availed in sale of property.
The transfer by settlement is within the family hence the capital gains benefits may not be applicable.
The lesser stamp duty is allowed for this purpose only.
You may not be eligible for all the benefits at a time.
1) is the brother absolute owner of property?
2)does your father have any share in father property
3) if his brother is absolute owner of property then your father can purchase property only by sale deed
4) transfer cannot be done by settlement deed ti save on stamp duty
If your uncle has held property for over 3 years sale of property would attract long term capital gains
Hi
I) Capital Gains on transactions effected through Settlement Deed
1) Any Settlement/ Partition deed executed amongst family members is NOT A TRANSFER and hence there is no liability of capital gains in these transactions
2) A Settlement/ Partition deed does not fall under the definition of "Transfer" as defined in section 2(47) of the Income Tax Act.
Leading case laws on the above point are
a) CIT vs. AL Ramanathan (2000) 245 ITR 494,
b) Smt. Vijaya Raje Scindia vs. ITO (ITA No. 2780(Bom./89) dated [deleted],
c) H.H Moharani Manekuraje Pawan vs. ITO (15 ITD 545 (Indore),
d) DCIT, Spl. Rg. 46 vs. Smt Vaishali K. Shah (ITA No. 7074/Mum/96 A.Y 1992-93.
II) Settlement Deed
A settlement deed is the preferred option as the transaction is within Brothers and the rates of stamp duty and registration are as follows in Tamil Nadu
a) as the stamp duty is 1% On the market value of the property but not exceeding Rs.10000/- and
b) Registration fee is 1% on the market value of the property subject to a maximum of Rs.2000/-
However in order to avail the benefits mentioned in points I and II above, the property of your father's brother should have some semblance of being ancestral in nature(i.e your father can claim that the property in the name of your father's brother was purchased through income generated through ancestral properties(the income need not be substantial and even a marginal income is sufficient proof to state that the property is ancestral))
Hope this information is useful.
