Selling Your House? Understand The Tax Implications!
Theremaycomeatimeinyourlifewhenyouchoosetoliquidateyourhome,whichisyour mostpreciouspossession.Thischoicemayhavebeenmadeforanumberofreasons,such asupgradingtoanicerhome,movingtoadifferentcityorcountry,orperhaps experiencingfinancialdifficulty.However,thereissomethingthatrequiresyourattention: inIndia,propertysalesaresubjecttotaxpayment.Allpropertykinds,withtheexceptionof agriculturalland,aresubjecttotaxuponsale.Anyrevenuefromthesaleofrealestateis subjecttotwoformsoftaxesforthepropertyseller.ThesameregulationsalsoapplytoNRI propertyowners.Continuereadingtheblogtolearnmoreaboutthesetaxes. Are you searching for upcoming projects in kharghar?
Taxes to be paid for Different Types of Property Sales
Thetaxesthatmustbepaidwhensellingapropertyareasfollows:
Tax Is Withheld at Source (TDS)
Itisataxthatispaidwithanypaymenttothevendor,asthenameimplies(i.e.atthe sourceofthetransactionbeingdone).TDSisplacedonbehalfofthesellerbythebuyer, whoreceivespaymentfromtheseller.
AccordingtoSection194IAoftheIncomeTaxActof1961,TDSisapplicableat1%ofthe entiresalepriceoftheproperty.
Information needed when submitting TDS for a property sale
ThekeyinformationneededtodepositTDSwhensellingapropertyislistedbelow.
PANcardsforboththebuyerandtheseller
ResidencesoftheBuyerandtheSeller
Residentialstatusoftheproperty'sseller
Fulladdressoftheassetthatwillbesold
DateoftheAccord
thepaymentdate
Totalexchangeprice
sumtotalofpayments
Onthesaleofrealestate,whetheronlineandoffline,buyerscanpayTDS.Theymustgoto theIncomeTaxDepartment'sonlineportal,completeForm26QB,andfollowthe instructionsinordertomaketheTDSpaymentonline.Ontheotherhand,theycanvisitany bankoftheirchoosingandcompletethesameformiftheywishtopayTDSwhensellinga propertyoffline.
ResidencyinIndiaisrequiredtocompleteForm26QBinordertopayTDSonthesaleofa property.NRIsmustcompleteForm27Qforthis.
Tax on Capital Gains
Forthepurposesofcalculatingincometaxes,immovablepropertysuchasland,buildings, apartments,single-familyhomes,etc.isreferredtoasacapitalasset.Asaresult,the proceedsfromthesaleofapropertyareconsideredcapitalgainsandaresubjecttocapital gainstax.
Thistaxdoesnotapplytoanylandthatisusedforagriculture.
Various Capital Gains
Short-termcapitalgainsandlong-termcapitalgainsarethetwoothercategoriesofcapital gains.
Gains Made Recently (STCG)
Whenacertainpropertyissoldwithin24monthsafterbeingpurchased,theSTCGTaxis applied.Theoriginalowner'sdateofpurchasewillbetakenintoaccountiftheproperty wasinherited.
TheSTCGforthatpropertyisthedifferencebetweenthesalepriceandtheacquisition price.ThisSTCGsumisincludedintheseller'snormalincomeandistaxedinaccordance withtheseller'sincometaxbracket.
Gains over the Long Term (LTCG)
Whenacertainpropertyissoldafter24monthsofpurchase,theLTCGTaxisapplied. Budget2017changedthedurationfromthreeyearstotwoyears.
20%istheLTCGTaxrate.Thisisinadditiontotheordinaryincometaxthatthesellermust payonthemoneyreceivedasawageorbusinessprofit.
TheLTCGisthedifferencebetweenthepurchasepriceandsalepriceoftheproperty,much astheSCTG.However,thecostofinflationduringthesaleofthepropertyistakeninto accountwhencalculatingtheLTCG.Todetermineareasonablecostofpurchaseofthe propertyintermsofitscurrent-dayvalue,thebenefitofindexationisaccessible. Theinflation adjustedcostofapurchaseiscalculatedviaindexation.Theformulaisas follows:
(IndexValueofSaleYear IndexValueofPurchaseYear)xOriginalPurchasePrice
An illustration of long term capital gains
TakethecaseoftheNaviMumbai basedbankerwhopaidRs.20lacsfora2BHKrow houseinMay2004.InNovember2019,shesoldthathomeforRs.90lacs. Here,eventhoughshepaidRs.20lacsforthehouse,sheisexemptfrompayingtaxonRs. 70lacs(Rs.90lacs Rs.20lacs).Instead,thefollowingformulacanbeusedtodetermine herhome'sinflation adjustedpurchaseprice:
Costofacquisition:20lacs
Priceofsale:Rs.90lacs
(FY2004 2005):113CostInflationIndexofthePurchaseYear
(FY2020 21)CostInflationIndexfortheSalesYear:301
TheIndexedCostofAcquisitionisequalto20x(301/113)orRs.53.27lacs.
ApersonwouldberequiredtopayLTCGTaxonthegainofRs.36.73lacs(Rs.90lacs-Rs. 53.27lacs).TheLTCGdueinthiscaseisRs.7.35lacs(20%ofRs.36.73lacs).
Youmaygettheinflationindex'svalueshere.Forpropertiespurchasedbeforeto1April 2001,thefairmarketvalueofthepropertyasofthatdaymaybestatedandutilisedasthe property'sinitialpurchaseprice.
Itshouldbenotedthattheentirecostofacquisitionmayalsoincludestampduty, registrationfees,andanycostsassociatedwithpost purchasepropertyupgrades(suchas remodelling,homerenovations,enlargement,etc.).However,thepricepaidforthese upgradesshouldbeindexedtothespecificyearinwhichtheyweremade.
Additionally,thecostsassociatedwithsellingthepropertymightbesubtractedfromthe saleprice.Forinstance,theentiresalepricetakenintoconsiderationwouldhavebeenRs. 89lacsifapersonhadpaidRs.1lacinbrokerage.
Long Term Capital Gains Example #2
Takeapersonasanexample,asstatedabove.Here,shespentroughly4lacrupeeson renovationstoherhomeinMay2010,and1lacrupeesoncommissiontoanestateagentin November2020toselltheproperty.
Costofacquisition:20lacs(includingstampdutyandregistrationchargespaid)
4lacsforhomeimprovements
Priceofsale:Rs.90lacs
Onelakhrupeeswasgivenasbrokerage(commission)totheestateagent.
(FY2004 2005):113CostInflationIndexofthePurchaseYear
Renovationcostinflationindexforthefiscalyear2010 2011:167
(FY2020 21)CostInflationIndexoftheSaleYear:301
Indexedcostofbuyingpriceequals20times(301/113)foratotalofRs.53.27lacs.
Indexedcostofremodellingcostsequals4times(301/167),orRs.7.2lacs.
Estimating the LTCG amount:
Totalcostofpurchase:60.47lakhrupees(53.27lakhrupeesplus7.2lakhrupees).
Priceoftheentiresale:Rs.89lac(Rs.90lacs-Rs.1lac)
AmountofLTCG:Rs.19.53lacs(Rs.89lacs Rs.60.47lacs)
Inthisscenario,ApersonwillonlybesubjecttoLTCGTaxofRs.3.9lacs(20%ofRs.
Important Elements That Affect Capital Gain Tax on Property Sales
Seeafewofthekeyelementsthatinfluencehowthecapitalgaintaxonthesaleofthe propertyiscalculatedbelow.
Cost of the Property: Thecostoftheassethasanimpactonthecapitalgaintaxdueupon sale.Thisissobecausetheproperty'srenovationcostsarealsoincludedinthetotaltaxable amount.Forinstance,let'ssayyoupaidRs.40lakhforapropertyandRs.10lakhto renovateit.OnRs.50lakh,capitalgaintaxwouldbeimposed.
Holding Period: Yourtaxburdenisimpactedbythetimeyouholdontothepropertyasthe ownerbeforesellingit.Youcanowemoreintaxesifthetransactionisclassifiedasashort termcapitalgain.However,ifitisregardedasalong termcapitalgain,youmighthaveto pay20%incapitalgaintaxwhenyousellthehouse.
New Property Investments: AccordingtoIndianITLaw,youmayonlyhavetopayasmall amountofcapitalgaintaxifyoureinvestthemoneyyoureceiveinexchangeforyour propertywithinacertaintimeframe.
Property ownership: Yourtaxliabilityisalsoimpactedbythenumberofpropertiesyou own.Ifyouownmanyhomes,youmighthavetopayagreatercapitalgaintaxwhenyou selloneofthem.Ownersofasingleproperty,however,payasmallamountintaxes.