Taxation on Exchange of Property

When one buys a property, the sale consideration is generally paid for, by way of money. However it is not necessary that the consideration for the transfer of a property, should always involve money. You may want to move to another bigger place or a smaller place, depending on changes in space requirements and other financial considerations. Exchange of one property with another one, is permitted under the property law. It is not always necessary that you exchange one residential place with another residential place. You may also exchange one commercial property for another property, whether land or commercial property or residential property or even an under-construction property. If the value on both of the assets is different, the difference can be settled by way of payment in money. However such exchanges may have some stamp duty and income tax implications.

For selling your property, you normally have to execute a sale deed or a sale agreement, which is required to be stamped with the rate applicable, on the market value of the property.However, for an exchange of property, you need to execute an exchange deed and not a sale deed, as an exchange transaction is different from a sale transaction. The exchange of two properties can also be done, by executing two separate sale deeds. However, in case two separate sale deeds are executed for such an exchange, you need to pay stamp duty on both the agreements. Some states like Maharashtra, have provisions for payment of concessional stamp duty, in case an exchange deed is executed. As per Article 32 of Schedule I of the Maharashtra Stamp Act, in case of an instrument of exchange or exchange deed, with respect to an immovable property, the document needs to be stamped, as if it is for the sale of an immovable property. The value, for the purpose of stamp duty on the instrument, shall be taken as the property with the higher market value. So, if you exchange your bigger flat with a smaller flat in the same building, the stamp duty will be payable on the market value of the bigger

As far as the question of who bears the cost of the stamp duty, it is a matter to be decided between the parties. In case of a sale deed, in the absence of any express understanding between the parties, it is the buyer who has to bear the cost of the stamp duty. However, in case of exchange, the matter needs to be resolved through mutual understanding. Since the exchange deed purports to transfer rights in an immovable property, as per Section 54 of the Transfer of Property Act, it needs to be registered with the office of the registrar of assurance.

However, for an exchange of property, you need to execute an exchange deed and not a sale deed, as an exchange transaction is different from a sale transaction. The exchange of two properties can also be done, by executing two separate sale deeds. However, in case two separate sale deeds are executed for such an exchange, you need to pay stamp duty on both the agreements. Some states like Maharashtra, have provisions for payment of concessional stamp duty, in case an exchange deed is executed. As per Article 32 of Schedule I of the Maharashtra Stamp Act, in case of an instrument of exchange or exchange deed, with respect to an immovable property, the document needs to be stamped, as if it is for the sale of an immovable property. The value, for the purpose of stamp duty on the instrument, shall be taken as the property with the higher market value. So, if you exchange your bigger flat with a smaller flat in the same building, the stamp duty will be payable on the market value of the bigger flat.


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