When buying any property, be it residential or commercial, there are certain important legal and taxation issues which you cannot afford to ignore, more so, if you want to make money from your investment in real estate. The first such issue, especially from the point of view of taxation, is the name in which the property is purchased. If you invest in a property in the name of a family member, which you later find was a mistake, and then the only solution to rectify your mistake is to go in for executing a fresh conveyance deed in the name of another family member. Which is why various taxation issues, depending particularly on the impact of income tax liability should be taken into Account when deciding in whose name the property should be bought?

          A legal point which should be borne in mind when buying a property in joint names is that at the time of purchase of property itself, care should be taken to clearly define the percentage of ownership of each co-owner in the property being purchased. If this point is taken care of, then future hardship and problems can all be avoided. Thus when purchasing any property in joint names, please write clearly the percentage of ownership of each co-owner. From the taxation point of view each co-owner should contribute money for purchasing the property pro-rata to the percentage of ownership. In case some family members do not have sufficient resources, they can take a loan from other family members.

         Whenever you buy a property, you must take care to verify the legal title of the owner. For this purpose, you can ask for the original property papers of the owner from whom you are buying the property. In case the seller has inherited the property, then you should examine the relevant documents, such as the Will, Mutation and Probate to satisfy yourself about the validity of the seller’s legal title. It would be worthwhile if you mention in the conveyance deed the detailed history of the property’s title. Better still, one full paragraph should be devoted to mention the past history of the property and the previous owners of the property.

         When buying a property, please ensure that till the date of its purchase by you, all the previous dues relating to the said property have been cleared by the owner/seller. It is also better to add a paragraph in the purchase deed to say that the seller will be responsible for all dues in respect of the property including house tax, maintenance, etc. till the date of sale. To avoid any future problems it is also worthwhile to mention in a specific paragraph of the sale deed that the seller is the lawful owner of the property in question and that he has not entered into any previous sale transaction with any other person/persons and the property is free from all encumbrances.

         Whenever you are buying a property, please check if the local Government has specified any circle rate for property in that area. If the sale consideration for the property is higher than the circle rate, you will have to pay stamp duty based on the sale consideration mentioned in the sale deed. On the other hand, if the value of the property mentioned in the sale deed is much lower than the circle rate of the property determined by the Sub-registrar, then you are required to make payment or the stamp duty for executing the sale deed based on the circle rate of the area.

         This aspect is very important and should always be taken into consideration whenever you buy a property. Section 50C of the Income Tax Act, 1961 also clearly stipulates that where the sale consideration received or accruing as a result of transfer by an assessee of a capital asset in the form of land or building, or both, is less than the value adopted or assessed by an authority of a state Government , i.e. the stamp evaluation authority, then the value so adopted or assessed for the purposes of capital gains shall be deemed to be the full value of the consideration, received or accruing as a result of transfer.

         This means that if the sale consideration is lower than the circle rate, then the circle rate would be substituted as the sale price for deriving the quantum of capital gain for the seller on the one hand while on the other hand the buyer of the property will be required to make payment on Account of stamp duty, based not on the value mentioned in the sale deed, but on the circle rate of the property.

          You must also check whether the seller will execute a legally valid conveyance deed, or whether the property will be sold through a power of attorney. In case the property is sold on a power of attorney basis, then as a buyer you should take care to ensure that there is a valid agreement to sell, coupled with an irrevocable power of attorney and a Will. All these three documents should be obtained to avoid any problem at a later stage. Moreover, possession for the property should also be obtained. For this purpose it is better to receive a separate possession letter from the seller of the property. This possession letter assumes great importance from the point of view of capital gain which may arise at a later stage.

          While buying a new property do take care to also screen all aspects connected with payment of wealth tax. Hence, it is better to buy only one residential property in the name of one family member. It may be recalled here that one residential property without any upper limit value is fully exempt from the purview of wealth tax. However, ownership of multiple commercial properties does not attract wealth tax.

          The aspects connected with capital gains should also be taken into consideration whenever you are buying a new property. If you sell some capital assets and invest the money in residential house property to save capital gains, then do remember to make the investment and take possession of the property within the stipulated time period. This is a must to save you from the capital gains tax.