Legal Requirements

PART B

1. What are the legal requirements of sale and purchasing of land?

Owning a house is an important thing in one’s life. However, one needs to be careful while buying a
property to avoid falling into legal hassles. Before buying a land, a number of checks need to be done to
confirm that the land has a clear and marketable title. The legal status of the land is one of the first issues
that should be addressed before confirming a property.

Title deeds

The first step is to see the title deed of the land, which you are going to buy.

* Confirm whether the land is in the name of the seller and that the full right to sell the land lies with only
him and no other person.
* It is better to get the original deed examined by a lawyer. This is to check details like whether the seller
has permitted any entry/access to others through this land and whether any other fact has been
suppressed/left undisclosed by the owner of the land.
* Along with the title deed, you can also demand to see the previous deeds of the land available with the
seller.
* In some cases, more than one person may own the land. So before registering, check if there is more
than one owner, and if there is, get release certificate from the other people involved.

Conveyance Deed or Sale Deed

A sale agreement is a document by which the title of property is conveyed by the seller to the purchaser.
Here, conveyance is the act of transferring ownership of the property from a seller to the buyer. This
document will help you ascertain whether the property, which you are buying, is on land belonging to the
society/ builder/development authority in which the property is located.

Tax receipt and bills

Property taxes, which are due to the government or municipality, are a first charge on the property and,
therefore, enquiries must next be made in government and municipal offices to ascertain whether all taxes
have been paid up to date.

* Inspect whether the latest tax paid receipts have been paid.
* Enquire with various departments of the municipality to ascertain whether any notices or requisitions
relating to the property are outstanding.
* If you are buying a house along with the property, then the house tax receipt should also be checked.
* Also ensure that the electricity and water bills are up-to-date and if there any is balance payment to be
made, ensure that it is made by the seller.

Encumbrance Certificate

Before buying any land or house, it is important to confirm that the land does not have any legal dues.

* Obtain a certificate called encumbrance from the sub registrar office where the deed has been
registered, stating that the said land does not have any legal dues and complaints.
* You can check the encumbrance certificate for the past thirteen years or could demand verify the 30
years encumbrance certificate.
Pledged land

Some people may have taken loan from the bank by pledging their land.

* Ensure that the seller has paid back all the amounts due.
* Ask for a release certificate from the bank, which is necessary to release all the debts over the land
legally.

Measuring the land

It is advisable to measure the land before registering the land in your name. Take the help of a recognized
surveyor to ensure that the measurements of the plot and its borders are accurate. You could also take the
survey sketch of the land from the survey department and compare for accuracy.

Purchasing land from NRI landowners

A person staying abroad can also sell his land in India by giving a Power of Attorney to a third person
authorizing him the right to sell the land on his behalf. In such cases, the power of attorney should be
witnessed and duly signed by an officer in the Indian embassy in his province.

Power Of Attorney

Power of Attorney is the power given to an agent by the principal to execute several acts and deeds for
and on behalf of the principal. Stamp duty payable depends on the nature of power given.

When ‘power’ is given in respect of a number of acts in a number of transactions it is called General
Power of Attorney. It is always advisable to hold a registered GPA while registering an immovable
property in order to give better title to the property.

When ‘power’ is given in respect of a particular act pertaining to one transaction it is called Special
Power of Attorney.

Agreement

Once all the matters, financial/otherwise are settled between the parties, it is better to give an advance and
write an agreement. This ensures that the owner does not change his word regarding the cost as well as
make a sale to someone else who offers more money.

* The agreement should be written in Rs.50 stamp paper.

* The agreement should state the actual cost, the advance amount, the time span within which the actual
sale should take place and how to proceed in case of any default from either parties, to cover the loss.
* The agreement can be prepared by a lawyer and should be signed by both the parties and two witnesses.
* After signing the agreement if one of the parties
makes a default, the other party can take legal action against him.
Stamp Duty
It is tax, similar to sales tax and income tax collected by the Government, and must be paid in full and on
time.
* A stamp duty paid is considered a legal document
and such gets evidentiary value and is admitted as evidence
in courts.
* Stamp duty is a State subject and hence would vary from state to state.
* When an agreement is to be stamped, it needs to be unsigned and undated one may execute the
agreement only after the Stamp Office affixes stamps on the agreement.
Registration
Registration is the process of recording a copy of a document, transferring the title in immovable property
to the office of the Registrar. It acts as proof that a transaction has taken place.

* A draft should be prepared before actually writing the document in stamp paper. Registration is done
after the parties execute the document.
* The agreement should be registered with the Sub-Registrar of Assurance under the provisions of the
Indian Registration Act, 1908 within four months from the date of execution of the document.
* Make sure all the details mentioned are accurate.
* Original title deed, Previous deeds, Property/House Tax receipts, etc plus two witnesses are needed for
registering the property.
* The expenses involved during registration include Stamp Duty, registration fees, Document writers/
lawyers fees etc.
* Make sure that the deed is registered within the time limit mentioned in the agreement.
* Stamp duty should be paid prior to the Registration.
Changing the title in Village office

The whole legal procedure of buying the property will be complete only if the new owners name is added
in the village office records. An application can be made along with the copy of the registered deed to the
Village office to get this done. Purchase of property is a lifetime investment. A lot of care is needed from
the beginning- right from site seeing till the registration of the land. Ensure that the documents of title are
scrutinised for marketability with due care by an experienced advocate.

2. Discuss about income tax calculation with examples.

Income tax is computed on the basis of your total income earned during the year i.e. from
01/04/2011 to 31/03/2012. This period is called the financial year and period from 01/04/2012 to
31/03/2013 during which you file the return is called the Assessment year under Income Tax Act,
1961.

Income is computed under following five heads:

1. Income under head Salary
2. Profit or gain from Business and Profession
3. Income or loss from House Property
4. Income from Capital Gains and
5. Income from other sources

Lets explain the heads in brief.

Income from salary is income earned by any person doing job under an employer. Employer and
employee relationship is must for taking income under head salary.
Profit or gains from business and profession relates to person doing business and professionals
engaged in practice.
Traders, manufacturers are covered under term business and lawyers, doctors, chartered
accountants doing their own practice and providing service are are called professionals and are
considered earning income from profession.

Income from House Property is the rental income earned by letting the property on rent by the
landlord. There can be loss also on property if some housing loan is taken for house property and
no rental income is earned. The interest paid for the housing loan is considered loss and is
deductible from total income upto Rs. 1,50,000.

Income from Capital Gain is of two kinds i.e. long term capital gain and short term capital gain.
Long term capital gain arises when a property (e.g.Flat) is held for more than 3 years and then
sold and any gain arises on same, then it is called long term capital gain.
In case of shares this period is taken only as 1 year, meaning if shares are held for 1 year an then
sold long term capital gain will arise.
In case of short term capital gain if any asset is sold within within 1 year, then short term capital
gain arises, if there is profit on sale. Loss can also arise in all the cases.

Income from other sources, all other income which do not get covered under any of the above
heads is classified into income from other sources. e.g. interest income, winning from lottery, any
winning form quiz show, winning from horse races, etc.

Income from all the above five heads is totaled for computing income earned by a person during
the financial year and taxed as per the prevailing rates after providing for deductions available.

Deductions available to an individual are as follows:

U/s 80C - LIC premium, school tuition fees for children, Provident fund contribution, principal
amount on housing loan, PPF, NSC, 5 year FD, etc.
U/s 80D - Medical insurance premium upto Rs. 15,000. Paid by cheque only.
U/s 80CCF - Investing in long term infrastructure bonds. Deduction upto Rs. 20,000.

Therefore total deduction available to an individual is Rs. 1,35,000.

Deduction of 30% is also available on rental income under section 24of Income Tax Act. It
means if an individual has rental income then his income form house property will be taken only
after deducting 30% from the rental income earned during the year.
e.g. If Mr. 'x' earns Rs. 1,00,000 as rental income during the year, then his income from house
property will be [100000-(30% of 1,00,000)] Rs. 70,000 only.

Rates of tax is as follows:

For Individual male, age less than 60 Years

Up to 180000 : Nil
180001-500000 : 10%
500001-800000 : 20%
800001 & above :30%

For Individual female, age less 60 years

Up to 190000 : Nil
190001-500000 : 10%
500001-800000 : 20%
800001 & above :30%

For Individual, age more than 60 Years (Senior Citizen)

Up to 250000 : Nil
250001-500000 : 10%
500001-800000 : 20%
800001 & above :30%

For Individual, age more than 80 Years (Super Citizen)

This is new provision added for this year
Up to 500000 : Nil
500001-800000 : 20%
800001 & above : 30%

In case of Capital gains the rates of tax are different.

For long term capital gain it is 20% and short term capital gain is taxed at normal rates given
above with few exceptions.
For e.g. if shares are traded at stock exchange meaning which are listed and any gain arises on
same are taxed @10%.
Some more technical aspects are their but all those cannot be covered here.