Tax Implications on Sale & Purchase of Property

Section 48 read with Section 50C read with Section 56(2)(x) read with Section 194IA of Income Tax Act, 1961 read with Income Tax Rules, 1962

Tax Implications on the Seller of Property:

Section 48- Computation of Capital Gain

Full Value of Consideration (Refer Section 50C Below) XXXX
Less: Expenses on Transfer Eg Brokerage XXXX
Net Consideration XXXX
Less: Indexed Cost of Acquisition (Refer 2nd Proviso to Section 148) XXXX
Less: Indexed Cost of Improvement (if any) XXXX
Less: Exemptions under Section 54 XXXX
LTCG XXXX

Section 50 C- Full Value of Consideration is case of Land & Building

Full Value of Consideration= Stamp Duty Value OR 110 % of Sales Consideration (FA,2020) whichever is higher

Note: Stamp duty Value is taken as on date of Agreement if payment is received in prescribed modes (Prescribed Modes- Notification 8/2020 dated 29.01.2020)

Example 

SDV= 120Lakh

Actual Consideration=100Lakh

110% of Actual Consideration= 110 Lakh

Full Value of Consideration= 120 Lakh

2nd Proviso to Section 48- Indexed Cost of Acquisition

Cost of acquisition × Cost inflation index of the year of transfer of capital asset
Cost inflation index of the year of acquisition

Indexed cost of improvement is computed with the help of following formula :

Cost of improvement × Cost inflation index of the year of transfer of capital asset
Cost inflation index of the year of improvement

Continuing the same Example, lets see what is the Tax Implication on Buyer

Example 

SDV= 120Lakh

Actual Consideration=100Lakh

110% of Actual Consideration= 110 Lakh

Full Value of Consideration= 120 Lakh

Tax Implications on the Buyer of Property

Compliances to be done

  1. Deduct TDS @ 1% as per Section 194 IA if Consideration exceeds 50 lakh for the Purchase of Immovable Property.
  2. File TDS Return in Form 26QB
  3. Furnish TDS Certificate to Seller under Form 16 B

Now Lets See what is Impact of Inadequate Consideration paid to Seller.

Section 56(2)(x) Taxation of Gifts

Taxable Income in the Hands of Buyer: Stamp Duty Value Less Consideration OR 50000(whichever is higher)

In Our Example,

Income from Other Sources of Buyer= 120 Lakh- 100 Lakh = 20 Lakh is Taxable under the head “Income from Other Sources

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