How to avoid legal issues when selling an ancestral property?

A property or a house holds greater significance beyond an investment, especially an ancestral property. In Indian culture, ancestral properties are seen as a symbol of family legacy and traditions, and as a source of security for the future. An ancestral property refers to assets that have been inherited through male ancestors and are passed down to future generations within the family. Given the involvement of many legal heirs, there is a likelihood of disputes arising over ancestral properties. More importantly, disputes often arise when an ancestral property is sold. There are several legal considerations to keep in mind when selling an ancestral property. Moreover, the consent of all the legal heirs or coparceners is necessary before selling an ancestral property, unlike any other self-acquired property. In this guide, we share key points to help you avoid legal issues when selling an ancestral property.

What is an ancestral property?

An ancestral property is a property that is inherited from one’s male ancestors. It must be passed on to at least four generations to qualify as an ancestral property. The concept of ancestral property inheritance is mentioned in the Hindu Succession Act 1956. Multiple people inherit ancestral properties from the same family as joint ownership. The right to own the property or the interest in such a property is acquired by birth.

A key consideration for a property to be ancestral is that it should have remained undivided and been owned by at least four successive generations in the family. If it was transferred through a will or a gift deed, it ceases to be ancestral in nature. On the other hand, an inherited property is one acquired by an individual after the death of a family member, whether or not the individual is a direct descendant.

Further, according to the Hindu Succession Act, all coparceners acquire the right to property ownership by birth. This implies that daughters of a male family member have equal inheritance rights to ancestral property as other sons.

Who can sell an ancestral property?

The right to sell an ancestral property is not limited to a single individual. Rather, all the coparceners have a say in the property and its sale as per the applicable personal law. According to Section 6 of the Hindu Succession (Amendment) Act, 2005, sons, daughters, grandsons and great-grandsons are coparceners and have equal rights to the ancestral property. They have the right to demand partition or sale of the said property.

Things to check to avoid disputes during ancestral property sale

#1. Verify property title and ownership history

Before proceeding to sell a property, it is necessary to check if it has a clear title – That is, without any encumbrances, liens, claims or pending disputes over ownership. Legal issues arise when transferring property ownership without a clear title or pending claims. Potential buyers look for properties with a clear title. To avoid problems during sale, it is important to verify the property’s title and ownership history. Sellers must check the mother deed, which is a record of the property’s complete ownership history. Another vital legal document is the encumbrance certificate, issued by the sub-registrar’s office. It can be obtained for a specific period, from 15 years up to 30 years.

#2. Ensure settlement of family disputes

Without the unanimous consent of all the parties involved, an ancestral property cannot be sold. Otherwise, it could pose legal problems later and affect the buyers as well. One approach to resolving internal family disputes over a property is to execute a family settlement deed. A family settlement deed is a legally binding agreement that sets out the terms agreed upon by family members to resolve disputes over property division, inheritance, or other issues. This arrangement ensures a fair distribution of the property, clears any confusion or misunderstandings and prevents further legal battles. It is worth noting that all the family members (coparceners) should voluntarily agree to the terms of the agreement.

#3. Seek NOCs from all legal heirs

When the owner of a property passes away, the legal heirs obtain the ownership rights. If the person has left a will, the property transfer takes place as per the will. In the absence of a will, the succession laws come into effect. The sale of an ancestral property cannot happen without the consent of all the coparceners. Even if one person disagrees, the sale cannot proceed. Thus, it is crucial to obtain a no-objection certificate (NOC) from all legal heirs.

After an amendment to the Hindu Succession Act, 1956, women (post-2005) became eligible to claim their rights over ancestral property. During the sale of an ancestral property, it is crucial to obtain the daughters’ consent through an NOC.

In case of transfer or relinquishment of share

If one has paid any consideration, in kind or cash, to any heir or claimant for acquiring their share, it should be mentioned in the transfer papers. Registration of the release deed for the transfer of share is also mandatory. Another document is a relinquishment deed, which is used to surrender one’s share in an inherited property without monetary consideration.

In the case of division

Similarly, a registered partition deed is mandatory to divide a jointly owned property. The document helps clarify individual ownership and recognise each coparcener’s share. So, each coparcener can use their portion independently.

In case of minor legal heirs

Furthermore, in case the legal heir is a minor, court permission is required before one can sell their share. This process is in accordance with the Guardians and Wards Act, 1890.

#4. Arrange complete documentation

During any property transaction, one should follow the due legal process involving documentation. Sellers must obtain the necessary consent from other parties and gather property-related documents. Some crucial documents include:

• Title deed
• Encumbrance certificate
• 7/12 Extract/ RTC/ Patta Chitta
• Will
• Legal heir certificate or succession certificate
• Gift/family settlement deed
• NOCs

A legal heir certificate is one of the important documents during the sale of an ancestral property. It is required to prove the relationship of the legal heir (spouse, children or parents) with the deceased individual. A legal heir certificate, issued by the Tehsildar or a local municipal authority, plays a vital role in a property dispute. On the other hand, a succession certificate is issued by a civil court after legal proceedings and can be obtained by any legal heir or successor with a valid claim to the deceased’s property.

#5. Clarify tax implications

While a person does not have any tax liabilities at the time of inheriting an ancestral property, there may be other tax implications, such as taxation on sale or other income generated from the property. So, there is a tax applicable to rental income obtained from the inherited ancestral property. When selling the property, the owner is liable for paying the capital gains tax. Capital gains (the amount obtained through the sale or transfer of the property) are classified as:

• Long-term capital gains (LTCG): When property is held for more than 24 months, the applicable tax rate is 20% with indexation or 12.5% without indexation
• Short-term capital gains (STCG): When property is held for less than 24 months, the tax rate is as per the income tax slab.

Property owners are also eligible for tax exemptions under the income tax provisions of Sections 54, 54EC, and 54F.

Further, tax deducted at source (TDS) is applicable on the sale of the ancestral property. The tax rate is 1% of the sale proceeds if the amount is more than Rs 50 lakh. In a jointly owned property, the tax is deducted based on each co-owner’s share.

#7. Complete property registration and mutation process

After negotiating with the buyer, sellers must draft a sale deed outlining the terms and conditions of the sale. Next, the sale deed should be registered with the local sub-registrar’s office according to the Indian Registration Act, 1908. Stamp duty and registration charges vary by state where the property is situated. During registration, one should ensure that the property details are accurate and that there are proper witness signatures. Similarly, the proper procedure for updating property details in municipal/revenue records, known as mutation, must be followed. The new property owner’s name should reflect after the inheritance or settlement. This is important to avoid future disputes over ownership, utility connections, property tax payments, etc.

Housing.com News Viewpoint

When planning to sell an ancestral property, it is crucial to conduct thorough legal due diligence and complete the documentation in a timely manner. At the same time, ensuring transparency in communication and dealings with other family members is extremely crucial. Many property disputes occur due to a lack of title clarity, the absence of consent from legal heirs, or outdated property documents. To navigate the complex process of selling an ancestral property, one can approach an experienced property lawyer.

FAQs