Exchange Deeds and Settlements

Exchange Deeds and Settlements

 An Exchange deed

As per the provisions contained in section 118 of transfer of property act when two persons mutually transfer the ownership of one thing for ownership of another, neither thing or both the things being money only, such a transaction is called an exchange. Definition is not restrict to immovable property only. Thus exchange implies, when two separate property owners mutually agreed to transfer the ownership and rights by exchanging the property with each other. Further exchange also means an exchange of length and barter of goods too.

If one of the item that has been transferred in money then it is not an exchange but sale, because sale should always be for a price but money in one form can be exchanged for money in another, such a type of exchange transfer can be reduce into writing in the form of property exchange deed for transfer of property rights needs to be registered with a jurisdictional sub registrar’s office while drafting the exchange deed and its registration including the documents execution its presentation and admission utmost care needs to be taken since this is a complex job.


“Settlement” means any non-testamentary disposition, in writing, of movable or immovable property made—

  • in consideration of marriage,
  • for the purpose of distributing property of the settlor among his family or those for whom he desires to provide, or for the purpose of providing for some person dependent on him, or
  • for any religious or charitable purpose, and includes an agreement in writing to make such a disposition and, where any such disposition has not been made in writing, any instrument recording, whether by way of declaration of trust or otherwise, the terms of any such disposition; [***]

Stamp duty:

To buy or sell a property one has to establish a sale deed or agreement which then has to be stamped with the rate applied by the state.

However, in case of exchange of the property one has to establish an exchange deed, not the sales deed or agreement. The exchange of two properties can also be done with two separate sale deeds. In this case, stamp duty has to be paid for each of the sale deeds. States like Maharashtra have provisions for a concession on the sale deed of the exchange property.

According to Maharashtra stamp duty act Article 32 of Schedule I, in case of an instrument of exchange or exchange deed, with respect to an immovable property, the document needs to be stamp, as if it is for the sale of an immovable property. The value, for the purpose of stamp duty on the instrument, shall be takes as the property with the higher market value.

This means, if you are exchanging your bigger property for a smaller one, then the stamp duty of the cost of the bigger property is payable.

In case of exchange of property, it has to be mutually decide by the parties about who is going to pay the stamp duty.

Income tax:

If the property is exchange after 24 months of buying it, then the profit or loss made on the exchange is treat as long term. If it is exchange within 24 months, then it is treat as short term.

In case of the property exchanges, where the parties only pay the differential amount, it should be mentioned in the sale deed. In such cases, to work out the capital gains, you will have to find the cost of the property and compare it to the price you bought it at. If the property is exchange after 24 months, then you are entitle to avail indexation benefit as well as tax exemption avenues under Section 54, 54F, 54 EC.

In case of exchange of residential property, there are provisions as well. If one is exchanging a smaller property for a bigger one, then there is no tax liability. You are exchanging to a smaller residential property and its market value is at least equal to long term gains, compute as above on the larger flats, there will be no tax liability as well. If the market value is lower than the indexed long term gains,

then you will have to pay the tax on the difference at 20.36 percent.

If you are exchanging the commercial property for residential property,

then you will have to check if the amount of investment on the residential property is at least equal to the market value of the commercial property.

It is evident that one does not get any tax benefit in the exchange of the property but can surely save some money on the stamp duty.


A family arrangement can be oral or in writing. If it is oral, it does not require any registration,

but if it is in writing, then the terms of the deed decide whether it is to be register or not.

A family settlement deed between brother and sister for distribution of property must be in writing. In case of settlement deed for disposition of property, the property can be:

  • Moveable – jewellery, shares etc
  • Immoveable
  • Cash in bank accounts

If the deed purports to assign an immovable property, the settlement deed must be mandatorily registered. The stamp duty is payable as per the value of the property.

If it is compulsory to register the document and the same is not register, it carries no evidentiary value in the court. It may act as an estoppel against the family member who has signed the document and has gained out of it. However,

if it is not mandatory to register a document and it is not register, it can be use in evidence.

Payment of stamp duty and registration can be done through an agent

(power of attorney holder for the s purpose) if the parties are NRIs and are not present in India.

Settlement deed be executed abroad

The settlement deed between brothers and sisters residing abroad can be execute in the country where they reside. If the settlement deed relates to property division and

has been executed abroad, the stamp duty is payable in India and

registration, if mandatory, is done in Sub Registrar’s office where the property is locate.

Otherwise also, for any document executed abroad and to be use in India,

stamp duty is pay in India at the office of the Sub Registrar,

within three months after it is first received in India. The concerned officer will authenticate the said document.

Any sign document should be present for registration within four months of its execution. If the document is execute abroad,

the time of four months begins from the date it is first received in India.

Grounds for challenging Settlement deed

Some grounds can be

  • Coercion
  • Fraud
  • Misrepresentation
  • Improper execution

As settlement deed can be cancel if the parties mutually agree to do so by executing a cancellation deed. Otherwise, a suit can be fill challenging the same on any of the grounds available for the same.


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