Tax on Purchase of Property-Some Points to Keep in Mind while Buying Property

Buying property is dream come true for buyers. Every person wants to earn and purchase property which he or she can own in his or his family members and loved one name. Buyers invests his hard-earned money in buying property and many a times land up in difficult situation because everyone knows that tax is required to be paid while selling property but many few have knowledge that investing in house may require buyer also to pay tax. Therefore some points are required to be kept in mind while buying property.

1. Reporting of High Value transactions by Registrars

Registrars/ Sub-registrars are required to report income-tax department about purchase and sale of property if Stamp Duty Value of property exceeds Rs.30lacs. The transaction of purchase/ sale of property shall be reflected in your Form No.26AS. So if you are purchasing/selling property above Rs.30lacs, you are under radar of Income-tax Department. Income-tax Department will verify whether buyer has shown adequate income in his return of income to cover up investment made in purchase of house property and whether seller has adequately shown capital gains and paid taxes. This step is taken by Deptt. to track high value transactions incurred by taxpayer on sale and purchase of property.

2. Deduction of TDS under section 194IA

If buyer purchases property who’s agreed Sale Consideration is 50lakhs and above, then buyer is required to deduct TDS @1% and pay the balance amount to seller. It is to be noted that TDS is required to be deducted on value of sale consideration and not Stamp Duty Value of property. TDS is required to be deducted at the time of giving advance for purchase of property also. It is not required to be deducted on purchase of agricultural land or if taxpayer purchases property from NRI. After deduction of TDS buyer has deposit the amount deducted into account of Central Govt. and file Form 26QB. The amount deducted shall be reflected in Form 26AS of Seller on the basis of which seller can claim TDS deducted.

3. Sale Consideration for Seller

Section 50C comes into operation if sale consideration is below guideline value determined by Stamp Valuation Authority. It says

a) If Agreed Value > Guideline Value, then Sale Consideration = Sale Consideration

b) If Agreed Value < Guideline Value, then Sale Consideration = Guideline Value

Note: 10% relaxation is given. It means if guideline value of Property is 1.10Crores and sale consideration is taken as 1crore, then capital gains is allowed to be calculated on 1Crore.

4. Income in hands of Buyer

If buyer purchases property below guideline value then difference between guideline value and purchase price shall be taxable under the head income from other sources u/s 56(2)(x) in hands of buyer. Relaxation of 10% or Rs.50,000/- whichever is higher is given. It means if you purchase property for 1crore but guideline value of property is 1.1crores, then nothing will be added to income of buyer.

5. Payment/accept sale consideration in cash

There are restriction on taking/paying cash on sale/purchase of immovable property. If any person takes/pays 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.

6. Documentation to be maintained

You should keep following documents-

a) Get yourself updated about what is the Circle rate of property which you are buying.

b) Agreement of Sale

c) Registry Papers

d) Bank statements

e) Loan papers if loan is taken for purchase of property

Note: These documents are not required to be uploaded while filing return of income but you should maintain documents in case your case is selected for scrutiny.

7. Selection Of Cases In Scrutiny Or Faceless Assessment–

Income-tax Department selects cases for scrutiny on basis of certain parameters. These are-

a) Selling of property below Circle rate

b) Verification of deduction claimed agsinst capital gains i.e. deduction claimed u/s. 54/54F/54EC

c) Verify cost of acquisition/improvement claimed

d) High value of property purchased/ sold and income not reflected in ITR.

Income-tax can reopen cases of last 6 years but from 01/04/2021 the time limit has been reduced. If case is selected for scrutiny than tax payers has to comply with assessment procedure and produce documents for verification and file convincing submission so that no addition is made.

8. Concessional rates in case property registration in the name of women

Stamp duty is a kind of tax that the government levies on legal documents, usually for transfer of assets or property. The stamp duty is calculated on the consideration amount or the circle rates of the property applicable in the area, whichever is higher. The charges vary from state to state. You must check if your state offers the concessional rates in case property registration in the name of women.
Some states offer such a concession on stamp duty. The Delhi Government’s official website states that stamp duty rate (payable at the time of registration of property if it is acquired by way of sale deed/conveyance deed/gift deed) is 6% for males and 4% for females.

9. Our Comments

These points are required to kept in mind while buying property . It is always advisable to purchase and sell property on circle rate to keep yourself out from unnecessary non-compliance. Kindly consult your CA before entering into purchase-sale transaction of property.

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The above comments do not constitute professional advice. The Author can be reached at [email protected] 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). 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.