A Guide to IT Implications on Property Sales in India
The property sale in India has tax implications which are laid on distinct factors such as type of property, holding period, and the residential status of the seller. It draws capital gains tax. Below is its overview-
1. Type of Capital Gains
The holding period i.e ownership period of the property decides the nature of capital gains
Short-term Capital Gains (STCG)
If the property has been held for 24 months or less, the gains are considered STCG and levied to tax at the applicable slab rate of the seller.
Long-term Capital Gains (LTCG)
If the property is been held for more than 24 months then the gains are regarded as LTCG and levied to tax at 12.5% without the benefit of indexation. If on or before 22nd July 2023 the property has been purchased then the seller has the choice to choose 20% taxation with indexation benefit. An individual has the choice to proceed with the more effective option between the two. For those who have purchased the property on or after 23rd July 2023 then the same option is not available.
Important: Easy Explanation on TDS for Property Sale by NRI (New Guide)
2. Applicability of TDS
If property value surpasses Rs 50 lakh then the buyer should deduct 1% TDS.
The TDS rate is 20% for the non-resident sellers.
3. Tax Implications for Non-Residents
From property sales, the capital gains by non-residents are within TDS-
20% for LTCG
Higher applicable slab rate for STCG
4. Capital Gains Calculation
Here is the calculation process for the capital gains:-
Long Term
Full Value of Consideration: The sale price of the property.
Less: Indexed Cost of Acquisition/Improvement (for LTCG): Acquisition cost or improvement adjusted for inflation using the cost inflation index (CII). Or actual acquisition cost as per the chosen option.
Less: Expenses on Transfer: Brokerage, legal fees, etc.
Net Capital Gains: The taxable amount
Short Term
Full Value of Consideration: The sale price of the property.
Less: Actual cost of acquisition
Less: Expenses on Transfer: Brokerage, legal fees, etc.
Net Capital Gains: The taxable amount
5. Exemptions from Long-Term Capital Gains
The below-mentioned exemptions are present to save on LTCG tax
- Section 54- The exemption for reinvestment in another residential property within the cited duration
- Section 54EC- The investment in bonds of NHAI, REC, etc within 6 months of transfer
- Section 54F- The applicable for sale of assets beyond residential property if proceeds are invested in a residential house
One year is the cited period for sections 54 and 54f before the date of sale/transfer or 2 years post the date of sale/transfer for the matter of the house being purchased. For the matter when the seller is developing a house then the seller has an extended time that is the seller would required to build the residential house within 3 years from the sale/transfer date.
Note- Under sections 54 and 54F the exemption can be claimed a maximum of up to 10 crores under the amendments drawn by the Budget 2023.
Read Also: What To Do Before Deadline for Filing the IT Audit Report
6. Special Considerations for Sales Value Determination
Stamp Duty Valuation: If the sale consideration is lower compared to the stamp duty value then the latter is considered to be the sale cost for tax computation.
Joint Ownership: Each co-owner is levied to tax under the respective share of the gains.
Below mentioned documents need to be carried by the seller for the tax filing objectives-
Sale/ purchase deeds
Record of improvement costs made with a receipt
Receipts of advance received if any for transaction
If the property is purchased before 1-4-2001, its valuation as of 1-4-2001 by a registered valuer