Tax on property sale in India attract various taxes such as Gains, Cess and TDS which is to be calculated and paid while selling the property. These taxes are to be paid in the same financial year as the sale of property.
There are several factors that a person needs to understand to completely know the effects on tax that the seller must pay on sale of property. Some of them save the seller significant amount in terms of taxes.
There are many benefits as well which the seller can avail of when he/she sells property in India.
Type of Gains for Tax on property sale in India: –
The gain acquired from sale of property is classified as “Capital Gains.”
There are 2 types of Capital gains which are levied on seller according to how long the seller has held the property for.
- Short-term Capital Gains (STCG):
- Short-term capital gains are classified as any gains on property sale which is held for less than 2 years (new or old property is sold within 2 years of date of purchase).
- The short-term capital gain is calculated as =sale price – (cost of buying+ expense on home+ sale transfer cost)
- The rate of tax on short term capital gain is as per income tax slab (0%,10%,20%, 30%).
- Long-term Capital Gains (LTCG):
- If the property is held for more than 2 years, then the gains are classified as long-term capital gains.
- Formula for calculating LTCG = Sale price – (indexed cost of buying + indexed expense on property +sale transfer cost).
- Here indexed indicates the inflation index which is equal to index of sale year divided by index of purchase year.
- Long term capital gain is taxed at flat 20% base rate and 3% Cess.
How to save on Tax on property sale in India or how to save capital gain tax: –
There are various schemes or benefits given by Government to offset the tax that must be paid for Capital Gains on property sales, which are explained below:
- Section 54: Purchase of another house within one or 2 years of selling a house property
- Can also be availed on construction, but the construction should be completed within 3 years from date of sale.
- Section 54EC: Saving on Taxes by reinvesting Capital Gain in certain bonds.
- These bonds can be sold after 3 years, for availing exemption, otherwise the tax will have to be paid.
- Invest or deposit capital gain in Capital Gain Account Scheme.
- These funds will not be taxed and can be re-invested within 3 years of deposit.
- This is a method of deferring tax liability rather than tax saving.
- Offset other capital losses.
Tax on property sale in India also attracts TDS on Sale of property: –
TDS is applied to sale of any property which is sold at a value of more than INR 50,00,000/-.
Salient features of Tax on property sale in India: –
- If property sold is more than INR 50,00,000/- then the buyer must deduct the TDS at the rate of 1% on complete amount and pay the tax dues to Income Tax Department (under the FORM 26QB). If PAN card of seller is not furnished, TDS is to be deducted at 20%.
- If payment is made in installments, then TDS is to be deducted on each Installment individually.
- TDS must be paid within 30 days of end of month in which the TDS has been deducted.
- After depositing the TDS, the buyer must obtain and furnish Form 16B to the seller.
- No TAN number is required for deducting or paying TDS, it can be processed on basis of PAN number.
Owner of this information can be
reached at K M GATECHA & CO LLP – CA in Ahmedabad.
Important note: This does not lead to legal advice or
legal opinion and is personal view and for information purpose only. It is prepared on the basis of facts available and applicable law.It is suggested to go through applicable provisions of law,latest regulations,judicial announcements, circulars, notifications and clarifications etc before taking any action based on above content.You agree here by that for any action taken on basis of above information in any manner writer or K M GATECHA & CO LLP is not responsible or liable for any omission,reliability,accuracy,completeness,errors or authenticity.This work by professional is just for knowledge purpose and does not constitute any kind of solicitation of work
Frequently asked questions on Tax on property sale in India
For taxation, capital gain is defined as profit made on sale of assets after deducting all associated costs.
Yes, deducting TDS is mandatory on to be deducted on any property purchase which is valued more that INR 50,00,000/-.
There are many benefits provided by the Government of India to offset tax on Capital Gains, such as reinvestment in house property or government bonds.
- Re-investment in property and bond is to be done within 2 years of date of sale,
- In case of construction and Capital Gains Account scheme, it is 3 years from date of sale.
- Tax rate on:
- Short term gains are as per income tax slab.
- Long term gains are taxed at 20% basic and 3% cess.