The old concept of exchange where consideration for any property was paid by way of giving another property has been taken further in the Transfer of Property Act, 1882. Sections 118 to 121 of the Act deal with Exchange of both movable and immovable property in India. It governs the voluntary transfer of property by a living person to another living person(s).
A transfer can be a partial transfer or complete transfer by a competent person who is authorized to make such a transfer. Under Section 118 of this Act, an exchange is defined as a transfer of ownership of one thing with another between two persons.
As per the Act, for a transaction to qualify as exchange:
- There must be two persons involved in the transaction.
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The ownership is transferred not in exchange of money, unlike
a transaction of sale.
However, the principles applicable to sale transactions are also extended to property exchange.
The benefit of going for a property exchange is the saving of taxes on the transaction as no money is involved in it. The property could be commercial or residential or retail.
The case of defective title
In case, the worth of the properties exchanged is not equivalent, the deviation of the prices is rewarded to the apt party. Where one of the properties in an exchange transaction suffers from a defective title, the person affected has two remedies available to him/her.
He /She can:
- Seek damages for the loss
- Claim return of the property transferred by him
Execution of Exchange
Any transaction involving exchange of property in India worth Rs. 100 or more is required to be executed in writing. The Exchange Deed should be registered with the concerned Authority functional in the state where the property is located under the Indian Registration Act, 1908.. Non-conformance may deem the transfer illegal and punitive action might be taken against one or both parties.
Our legal experts can offer you help and advice on how to prepare for the registration of a property exchange.
The Stamp Duty payable under the Indian Stamp Act, 1899 (Entry 31 of Schedule I) is the same as a conveyance for a consideration value equal to the value of greater value as set forth in the instrument of exchange.
Where foreign exchange is involved in transaction of exchange, the laws applicable to FEMA apply.