real estate laws & taxation

Real Estate Laws & Taxation Encyclopedia

Trainings by Vidya Bhagwat

2.1 Various Laws Involved in Real Estate Transactions :

The various laws governing the real estate transactions have been abridged as follows: 1. The Indian Contract Act, 1872. 2. The Transfer of Property Act, 1882. 3. The Indian Registration Act, 1908. 4. The Specific Relief Act, 1963. 5. The Urban Land (Ceiling & regularization) Act, 1976.6. The Land Acquisition Act, 1894. 7. The Indian Evidence Act, 1872. 8. The Indian Stamps Act, 1899. 9. The Rent Control Act. 10. The State Laws governing the real estates.


11. The Consumer Protection Act, 1986.12. The Arbitration & Conciliation Act,1996.13. Income Tax Act, 1961. 14. The Wealth Tax Act, 1957 15. The Co-operative Societies Act, 1912 16. The Multi-state Co-operative Societies Act, 2002

I. The Indian Contract Act, 1872 :There is one basic difference between the law

of contracts and other laws. It does not specify the number of rights and duties, which the law protects or enforces. It rather consists of a number of limiting principles, subject to which the parties may create the right and duties for themselves, which the law will uphold.


a) Definition of contract : According to Section 2 (h), the term contract means an

agreement enforceable by law.

b) Steps involved in contract :The steps involved in the contract are: 1. Proposal and its communication. 2. Acceptance of proposal and its communication. 3. Agreement by mutual promises. 4. Contract. 5. Performance of Contract: All agreements are not contract.

Only those agreements which are enforceable by law are contracts‘. Following are essential requirements of a valid contract.


1. Offer and its acceptance. 2. Free consent of both parties. 3. Mutual and lawful consideration for agreement. 4. It should be enforceable by law. Hence, intention 5. should be to create legal relationship agreements of social or

domestic nature are not contracts. 6. Parties should be competent to contract. 7. Object should be lawful.

c) Types of contract : There are five types of contract, they are:

1. Void contracts 2. Voidable contracts 3. Valid contracts 4. Unenforceable contracts 5. Illegal/unlawful contracts


1. Void contracts : Section 2 (j) of the Indian Contract Act, 1872 defines a void

contract as under: A contract which ceases to be enforceable by law becomes void, when it ceases to be enforceable. It is clear from this definition that a void contract is a contract which was valid originally.

2. Voidable contract : Section 2 (i) of the Indian Contract Act, 1872 defines

voidable contract as under: An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract‖. From this definition, it is clear that a contract is voidable if it is enforceable by law at the option of only one of the contracting parties, and not at the option of both the contracting parties.


3. Valid contract :A valid contract is an agreement enforceable by law. An

agreement becomes enforceable by law only when it satisfies all the essential elements of a contract as contained in Section 10 of the Indian Contract Act. So, a valid contract is an agreement which satisfies all the essentials of a contract, as contained in Section 10 of the Indian Contract Act. For example, if A offers to sell his house to B for Rs 10 lakhs and B accepts the same, there is a valid contract. The legal rights conferred and the legal obligations imposed by a valid contract are enforceable by law against each other.

4. Unenforceable contracts : An unenforceable contract is a contract which is valid in

itself, but cannot be enforced in a court of law because of some technical defect, say absence of writing, absence of registration, want of requisite stamp, expiry of time, etc.


5. Illegal or unlawful contracts : Section 23 of the Indian Contract Act deals with such

contracts. An illegal or unlawful contract is one whose object or consideration

I. Is forbidden by law or II. Is of such a nature that, if permitted, it would defeat the III. Provisions of any law or IV. Is fraudulent or V. Involves or implies injury to the person or property of VI. Another or VII. Is immoral or VIII. Is opposed to public policy.


This Act lays down the general principles of realty, like part performance and has provisions for dealing with property through sale, exchange, mortgage, lease, lien and gift. A person acquiring immovable property or any share/interest in it is presumed to have notice of the title of any other person who was in actual possession of such property.

III. The Registration Act, 1908 The purpose of this Act is the conservation of

evidence, assurances, title, and publication of documents and prevention of fraud. It details with the formalities for registering an instrument.


IV. Special Relief Act, 1963

This Act is only to enforce individual civil rights [Section 4]. A person dispossessed of immovable property without his consent (other than in due course of law) can recover possession by a suit filed within six months from the date of dispossession. In a suit for specific performance of contract, the Court shall presume that monetary compensation for its performance would not afford adequate relief. The court could also grant a permanent/ mandatory injunction preventing the breach of such contract and award damages.


V. Urban Land (Ceiling and Regulation) Act (ULCRA), 1976

This legislation fixed a ceiling on the vacant urban land that a person‘ in urban agglomerations can acquire and hold. A person is defined to include an individual, a family, a firm, a company, or an association or body of individuals, whether incorporated or not. This ceiling limit ranges from 500–2000 sq. m. Excess vacant land is either to be surrendered to the competent authority appointed under the Act for a small compensation, or to be developed by its holder only for specific purposes. The Act provides for appropriate documents to show that the provisions of this Act are not attracted or should be produced to the Registering officer for registration under the Registration Act.


VI. The Land Acquisition Act, 1894 This Act authorizes governments to acquire land for public

purposes such as planned development, provisions for town or rural planning, provision for residential purpose to the poor or landless and for carrying out any education, housing or health scheme of the Government, in its present form. The Act hinders speedy acquisition of land at low prices, resulting in cost overruns.

VII. The Indian Evidence Act, 1872 Evidence means and includes: 1. All statements which the Court permits or requires to be made

before it by witnesses, in relation to matters of fact under inquiry; such statements are called oral evidence.

2. All documents including electronic records produced for the inspection of the Court; such documents are called documentary evidence.


VIII. The Indian Stamp Duty Act, 1899

Stamp means any mark, seal or endorsement by any agency or person duly authorized by the state government and includes an adhesive or impressed stamp for the purpose of duty chargeable under the act.

Duly stamped as applied to an instrument, means that the • instrument bears an adhesive or impressed stamp of not less • than the • proper amount and that such stamp has been affixed • or used in accordance with law for time being in force in

India.


a) Power of Parliament :Parliament can make law in respect of Stamp Duty. It

can prescribe rates of stamp duty. The stamp duty rates prescribed by Parliament in respect of bill of exchange, cheques, transfer of shares etc. will prevail all over India.

b) Power of the State:The Stamp duty is a State subject and hence would

vary from state to state. The stamp duty in many states is paid as per the true market value as assessed by the Stamp Office. When an agreement is to be stamped, it needs to be unsigned and undated and after the Stamp Office affixes stamps on the agreement, one may execute the agreement.


c) Instruments chargeable to stamp duty :Instrument includes every document by which any

right or liability, is, or purported to be created, transferred, limited, extended, extinguished or recorded [Section 2(17) of Indian Stamp Act]. Any instrument mentioned in Schedule I to Indian Stamp Act is chargeable to duty as prescribed in the schedule [Section 3].

d) Duty payable when there are several instruments :In case of sale, mortgage or settlement, if there are

several instruments for one transaction, stamp duty is payable only on one instrument. On other instruments, nominal stamp duty of Re. 1 is payable [Section 4(1)]. If one instrument relates to several distinct matters, stamp duty payable is aggregate amount of stamp duties payable on separate instruments [Section 5].


e) Powers to reduce stamp duty :Government can reduce or remit whole or part of

duties payable. Such reduction or remission can be in respect of whole or part of territories and also can be for particular class of persons. Government can also compound or consolidate duties in case of issue of shares or debentures by companies [Section 9(1)]. Government‘ means Central Government in respect of stamp duties on bills of exchange, cheque, receipts etc. and State Government‘ in case of stamp duties on other documents [Section 9(2)].

f) Mode of payment of stamp duty : The payment of stamp duty can be made by adhesive

stamps or impressed stamps. Instrument executed in India must be stamped before or at the time of execution (Section 17).


g) Valuation for stamp duty :In some cases, stamp duty is payable on ad valorem

basis i.e. on basis of value of property etc. In such cases, value is decided on prescribed basis.

h) Adjudication as to stamp duty payable :Adjudication means determining the duty payable.

Normally, the person paying the duty himself may decide the stamp duty payable and pay accordingly.


XI. The Consumer Protection Act, 1986

The Consumer Protection Act enables a person to file a complaint against the builder for deficiency in service and claim damages from him.

For the purpose of the Consumer Protection Act, the term Consumer has been defined separately for goods and services‖.

1. For the purpose of ―goods‖, a consumer means a person belonging to the following categories:

(i) One who buys or agrees to buy any goods for a consideration that has been paid or promised or partly paid and partly promised or under any system of deferred payment.

(ii) It includes any user of such goods other than the person who actually

buys goods and such use is made with the approval of the purchaser.


XII. The Arbitration and Conciliation Act, 1996

The Arbitration Act, 1996 that repealed the Arbitration Act, 1940 governs arbitration over commercial disputes. The underlying idea is that disputes may be settled between persons without recourse to a court of law.

XIII. Income Tax Act, 1961 In India, the Constitution of India is the parent law. All other

laws should be enacted without exceeding the frame-work of the Constitution and subject to the norms laid down therein. The Constitution of India empowers the Central Government to levy tax on income. By virtue of this power and to achieve this objective, the Income Tax Act, 1961 was enacted in the place of the Income Tax Act, 1922 which was prevalent earlier


XIV. The Wealth Tax Act, 1957

There are two direct taxes in India—income tax and wealth tax. Wealth tax Act is complex and real estate is subject to wealth tax. Valuation of real estate, the exemptions and deductions allowed, and so on make for an interesting study. Wealth Tax is a tax on the value of wealth owned by a person, levied under the Wealth Tax Act. The tax is levied @1 per cent on the amount of wealth as on 31st March of every year, where such amount exceeds Rs 15,00,000. This is similar to the basic exemption limit of Rs 1,00,000 provided under the Income Tax Act.


XV. The Co-operative Societies Act, 1912

Cooperative Societies Act is a Central Act. However, Cooperative Societies‘ is a State Subject (Entry 32 of List II of Seventh Schedule to Constitution, i.e. State List). Though the Act is still in force, it has been specifically repealed in almost all the States and those States have their own Cooperative Societies Act.

XVI. The Multi-state Co-operative Societies Act, 2002 Since Cooperative Societies is a State Subject (Entry 32 of

List II of Seventh Schedule to Constitution, i.e. State List), the cooperative societies formed under State Acts have to restrict their activities to only one State.


2.2 Legislations Administered by the Ministry of Urban Development

A. Constitution (Seventy-Fourth Amendment) Act 1992: This is a revolutionary piece of legislation by which

Constitution of India was amended to incorporate a separate Chapter on urban.

B. Administration of Delhi Development Act, 1957 : This Act replaces the Control of Building Operations

Ordinance 1957 by which the DDA was constituted. The Act defines the constitution role, powers and functions of Delhi Development Authority.


C. The Urban Land (Ceiling and Regulation) Act, 1976 :The Urban Land (Ceiling and Regulation) Act, 1976

came into force on 17 February 1976.

D. The Urban Land (Ceiling & Regulation) Repeal Act, 1999: The Urban Land (Ceiling & Regulation) Act 1976 has

been repealed by the Urban Land (Ceiling and Regulation) Repeal Act, 1999. The Repeal Act has been notified on 23 March 1999.


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