Buying property in joint ownership is quite common. People buy property in joint ownership to enjoy tax benefits, and also to ease the transfer of property rights to the heir. Sometimes, it is also done to win the eligibility for a home loan. Let’s take an overview of all the consequences that occur when a co-owner chooses to go for relinquishment of rights on the property.
Why a co-owner chooses to give up property rights
One can transfer property to other person by the way of three types of documents –
1. Gift deed,
2. Relinquishment deed,
3. Sale or Transfer deed.
These documents have relevance in different situations. Of these, when a co-owner chooses to transfer property to other legal heir, relinquishment deed needs to be signed for establishing clarity. Co-owner does so sometimes in lieu of money they get for relinquishing of rights on property or its part. The co-owner also does so to transfer property to another co-owner because of relocating to other place due to which managing the property becomes a hassle. Mostly, when parents die without leaving a will behind, the relinquishment deed is signed to clarify ownership on property. The co-owner can transfer the property only to the legal heir and nobody else.
How relinquishment of rights on property is established
When a co-owner wishes to relinquish the property or part of it to another legal heir, signing of certain documents is essential. One of such documents is release deed. It is to be signed by the relinquishing party and the receiving party and duly stamped. The stamp duty charges will be applicable on only the portion of the property relinquished.
It is worth noticing that the person giving up the rights cannot transfer it to any other person except the co-owner. If the co-owner chooses another person other than the previous co-owner to transfer property to, the document through which it can be done is a gift deed. Accordingly, stamp duty charges are applicable on this transfer.
Some important facts about the relinquishment of rights
Before you choose to transfer property to another co-owner, you must understand certain facts about the transfer of property rights. These facts are:
- Relinquishment deed is irrevocable. Even if the person who has given up the property rights is not compensated, the deed cannot be annulled. The re-transfer of property can take place only through sale/transfer deed after the payment of stamp duty charges.
- Relinquishment of rights comes under section 17 of Registration Act of 1908. According to this section, the transfer property process has to be registered at the registrar’s office.
- Relinquishing the rights is possible only between two co-owners. The rights to any other legal heir can be transferred, but through gift deed.
- Relinquishment of rights does not offer any tax benefit to the person giving away the rights of property to another co-owner because it is just the transfer and so is different from gifting the immovable property.
- The income received as a compensation for the relinquishment of property rights is accounted as capital gain and so this amount attracts tax. The amount received can be deposited in the bank under capital gain scheme to avoid tax, or it can be used to buy another property within one year to avoid tax.
- The parties signing the relinquishment deed have to be physically present at the registrar’s office. In case of inability to appear, the person can choose his agent or other person of his choice to represent him through a power of attorney.
Relinquishing the rights on property is not an easy decision. It definitely should not be done out of haste or emotions as your legal heirs may get be affected by your decision. Also, before relinquishing the rights, it is better to get the financial compensation terms clarified so that you do not end up losing on money too. Once the compensation is received, learn clearly about the tax implications and take the right action accordingly.