bitcoind is imposing a transaction fee of 0.0001 BTC forcefully even though I have set "transaction fee" to 0. Is it possible to transfer BTC to an address without paying a fee? If so, how?
Upgrade to Bitcoin version 0.9 or later which removes the minimum relay fee. Just be warned -- the lower the fee you set, the longer it can take for your transaction to be confirmed. Zero-fee transactions can take days.