1. INTRODUCTION

In India whenever someone requires money he either sells his property, shares or gold. Property is considered as capital asset under income tax law and its sale has wide range of tax implications. Govt. has imposed many restrictions on sale of property and has also allowed deductions and exemptions that can be claimed when someone sells his property. Some of the Considerations to be kept in mind while selling property are explained in this article.

Income Tax on sale of property

2. NOT EVERY PROPERTY WHICH IS SOLD IS TAXABLE-

Firstly, we should ascertain that the property which is intended to be sold should be capital asset in eyes of law. Capital asset means property of any kind held by a person but it excludes stock, rural agricultural land, Gold bonds, movable personal goods like cars, mobile, clothes, furniture, etc. Jewellery, paintings, drawings are capital asset. On sale of capital asset capital gains arises and tax is levied on such capital gain. Tax rate on sale of immovable property is as follows-

Period of Holding Type of Gain Tax Rate
Less than 2 years Short Term Capital Gain Applicable Slab rate
2 years or more Long term Capital Gain 20%

3. ACCEPT CASH ON SALE OF PROPERTY

There is restriction on taking cash on sale of immovable property. If any person takes cash of Rs. 20,000/- or more on sale of immovable property as an advance or as sale consideration, then penalty equal to cash accepted on sale shall be levied.

4. SALE OF IMMOVABLE PROPERTY FOR Rs.30 LAKHS OR MORE-

If any person purchases or sells immovable property whose Stamp Duty Value is Rs.30 lakhs or more, then it will be considered as High Value Transaction and Registrar is required to report to Income-tax Department about such transaction. The same is shown in Form No. 26AS of taxpayer. Income-tax then verifies return of income that whether adequate capital gains have been disclosed or not in ITR.

5. DEDUCTION OF TDS @1% ON SALE OF IMMOVABLE PROPERTY FOR Rs.50 LAKHS OR MORE-

If any person sells immovable property for Rs.50 lakhs or more, then he will receive sale consideration after deduction of TDS@1%. As per law buyer is required deduct TDS and then pay the balance amount of seller. The seller can claim TDS while filing his return of income. TDS is not deducted on sale of agricultural land.

6. STAMP DUTY VALUE OF PROPERTY-

Stamp duty value (SDV) is the value which is ascertained by Stamp Valuation Authority for payment of Stamp Duty. It is also called Circle Rate of property. As per income-tax law, Sale consideration is taken as follows-

If Agreed amount= SDV Sale Consideration=SDV/Agreed Amount
If Agreed amount> SDV Sale consideration= Agreed Amount
If Agreed Amount<SDV Sale Consideration= SDV

But in such case person can challenge the SDV of property.

7. IF DATE OF AGREEMENT AND REGISTRY ARE DIFFERENT-

In case of immovable property, if date of Agreement fixing the value of consideration and date of Registry are different than full value of consideration for transfer of such asset shall be the Stamp Duty Value on the date of Agreement provided amount of consideration or part thereof has been received through banking channel.

8. CAN CLAIM CAPITAL GAIN EXEMPTION BY INVESTING IN TWO HOUSES-

Taxpayers can now obtain long-term capital gains exemption on sale of a house by investing in two houses where capital gains is less than 2 Crore rupees. Earlier, the exemption was available for investment in only one property.

9. STRONG TAX PLANNING-

Taxpayer can save tax on capital gain by further investing the amount as per law. Some of capital gains exemptions allowed are as follows-

1. If capital gain on sale of residential house is further invested on purchase or construction of another residential house.

2. If net consideration on sale of long term capital asset other than residential house is invested on purchase or construction of residential house.

3. If capital gains is invested in bonds issued by National Highways Authority of India or Rural Electrification Corporation Limited.

OUR COMMENTS

Sale of property has wide range of tax implications. There is tax regulation on each and every stage of selling property. One should always seek advice of expert before selling property so that tax planning can be executed properly within required time frame. Most of the cases pending in appeal or for which notices are issued by Income-tax Dept.  for assessment relates to sale of property. Therefore adequate tax measures are required to be taken. Govt has imposed many restrictions to safeguard inflow of tax into its pocket. Tax payer should also grab an opportunity to save taxes legally.

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Disclaimer: The above comments do not constitute professional advice. The Author can be reached at companyfinancialtree@gmail.com or visit website www.financialtreecompany.com . My name is CA Divya Agrawal and I am Practising Chartered Accountant, CEO and Founder of FINANCIAL TREE COMPANY (An online return filing and Tax Consultancy Company) where we have taken an initiative that allows person to Pay from Heart. We also upload educational videos in You tube and name of our channel is FINANCIAL TREE COMPANY. Our aim is to help people in improving their financial health by spreading knowledge and love. Stay Financially Fit and Healthy.

Author Bio

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