According to the ruling of Honorable Supreme Court of India, Property Registration is mandatory to transfer the title of the property through conveyance deed/sale deed. When my father bought first property in 1986, he skipped Property Registration. He bought a property through GPA (General Power Attorney). In those days, it was perfectly legal to transfer the property title through GPA and was common practice. There was always a hidden risk of a future dispute. The only reason for this arrangement was to save Property Registration Charges :). It was a revenue loss for the govt and secondly, the chances of legal disputes were very high. To stop these practices, the Supreme Court of India passed a historical judgment that Title of the Property can only be transferred through registered conveyance deed/sale deed.
From time to time, i share through my blog the ways and means to save money in a legitimate and ethical manner. In past, i shared a post on How to save stamp duty and Registration Charges?. I explained the concept of DOTOR or Deed of Transfer of Rights that is perfectly legal to execute. The readers want more savings during property registration. One of the reason is that property registration charges are very high in some states. It is as high as a double digit. Secondly, property registration charges are not included in Home Loan eligibility. The LTV of 80% is calculated on property value excluding property registration charges. In short, buyer bears the cost. Last but not the least and my favorite quote “A Rupee Saved is A Rupee Earned”. In this post, we will discuss four least known ways to save property registration charges.
Property Registration Charges – How to SAVE?
1. Appeal to Sub Registrar: With the meltdown of the real estate sector. The property prices are either stable or dropped. On the other hand, govt is prompt to revise Circle Rate / Govt Guidance Value / Ready Reckoner Rate every year. Stamp duty is one of the major source of revenue for local state govt. Because of this, in most parts of the metro cities or cities that have seen rapid growth, the market value of the property is less than circle rate. In such a situation, the property registration charges are payable on higher of two i.e. circle rate or market value. For example, if i am buying a property for 60 lacs and circle rate is 75 lacs. In this case, property registration charges are payable on 75 lacs. Assuming, total charges at 6% means additional outflow of Rs 90,000. The home loan provider or agents/brokers suggest the buyer to pay property registration charges and close the deal. Everyone has their vested interest.
Not many buyers are aware that under the state stamp act they can appeal to sub-registrar for determination of market value. The sale deed/conveyance deed will be kept pending without completing registration. The matter is referred to DC (valuation) or concerned authority for determination of the market value. In case, the concerned authority is convinced that market value is lower than circle rate. The buyer is allowed property registration at a lower value. Therefore, a buyer can save property registration charges.
2. Property Registration at UDS (Undivided Share): This option is available only for under construction property. Typically a buyer sign two agreements with the builder i.e. Sale Agreement and Construction Agreement. In layman terms, sale agreement is for UDS (Undivided Share) in property i.e. share of a buyer in the common area. It includes the price of land and cost of land development. For example, for a flat of 1000 sq ft super built up area. Assuming built up area is 750 and UDS is 250 sq ft. Considering property value is 30 lac. In this case, the builder will divide 30 lac in two parts i.e. sale agreement and construction agreement. The sale agreement for UDS of 250 sq ft will be at circle rate, or govt guidance value says 10 lac. Balance 20 lac will be included in construction agreement towards the cost of construction. The sale deed will be executed for UDS of 250 sq ft i.e. 10 lac. Therefore, the buyer will save property registration charges on 20 lacs towards the cost of construction. The construction agreement is normally executed on stamp paper of Rs 200. Just to add that in some states like Tamil Nadu, it is mandatory to register both sale agreement and construction agreement. This option is only possible in states where registration of construction agreement is not compulsory.
3. Discount on property registration charges for FEMALE buyers: States like Haryana and Delhi offer a discount of up to 2% on property registration charges in the case of joint/individual purchase by females. Here the word of caution is that you should not include a woman/usually wife just to save property registration charges. It is especially true in case you are availing a Home Loan, and the female buyer is housewife/non-earning. Reason being, in the case of joint ownership, a co-owner should be co-borrower. Therefore, by including co-owner, a non-earning female member will be guarantor/co-applicant of home loan. Just to save few thousand rupees, this kind of scenarios should be avoided.
4. Study local stamp act: Please note that property registration charges are a state subject. The rules vary from state to state. You should review the local stamp act or hire a professional who can help in this regard. Sometimes, state rules help you to save property registration charges. For example, most of my clients in Maharashtra are not aware that if you sell the property within one year of buying from a builder, then the property registration charges are applicable only to the net profit. For example, i bought a property worth 1.5 Cr in Maharashtra from a builder. I sell it within one year for 1.60 Cr. In this case, property registration charges are applicable only on 10 lac i.e. net profit from the transaction. In Maharashtra, If a person gifts the residential/commercial property to husband, wife, son, daughter, grandson, granddaughter or wife of deceased son, stamp duty is only Rs 200. Among all states, i find stamp act of Maharashtra very flexible and buyer friendly.
Word of Caution: All said and done. If you are availing home loan, then you should discuss property registration value with the home loan provider. Reason being PSU banks approve home loan only on registration value. For example, sale agreement value is 1 Cr. You are saving stamp duty and registering property at 70 lacs. In this case, some of the PSU banks will consider 70 lacs for fixing home loan eligibility. Max home loan eligibility is 80% of 70 lacs i.e. 56 lacs. Therefore, it is important to keep home loan provider in the loop to avoid any unpleasant surprises in future.
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