Tax Implications of Selling your House in India
21st August, 2015 Posted by Sohan
Selling houses under residential projects in India has multiple tax implications. The taxes are applicable on the profits incurred from the sale of property. First let us understand what kind of taxes are applicable here:
Duties – Upcoming apartments in India costing 50 lakhs or above have 8% duties payable in the guise of brokerage, registration fees and stamp duty.
Wealth Tax – The home to be sold falls under the resale of apartments in India which is taxable at 1% wealth tax if the amount of wealth is greater than 15 lakhs.
Short Term Capital Gains (STCG) - If you wish to sell your property within 3 years of ownership STCG is payable on it. It is applied at the income tax slab rate after adding the profit to the income for the year. STCG is calculated on the property sale after deducting the amount spent on repair and renovation, the cost of acquiring the property (including loan for financing), brokerage fees, legal fees and stamp duty. This is implied on LTCG (Long Term Capital Gain) too. Long Term Capital Gain (LTCG) - LTCG is payable on property owned for over 3 years. The tax is levied at 20% after indexation. 20% tax along with CESS and surcharge are applied after adjusting capital gains for inflation using cost inflation indices of the government. -If the property was inherited or gifted to you, then the capital gains will be calculated on a cost basis, as was accrued to the previous owner. If the property was bought before 1st April, 1981 then the Income Tax Department will consider cost incurred by the owner when he/she bought the property or the property’s fair market price as on 1st April, 1981 – the higher price will be taken into account. After all the government does like a nice, big tax pinch! -However tax rules are different for selling an under-construction property after owning it for three years. The Income Tax Department does not consider ownership until possession. Hence no taxes are payable.
How to save tax?
The important part however is to save tax. The entire tax amount can be saved, if the money equivalent to the LTCG is used for buying a new apartment or any other immovable property situated in India within a year of sale/2 years after the date of sale. This is regulated under Section 54 F of the Income Tax of 1961. If the property to be bought is under construction then the time-frame is extended to three years. However, this exemption is made only if you don’t possess the ownership deed of both houses at the same time. The remainder money (if any) is taxed at 20% with CESS and surcharge.
The tax amount can be saved even if you are not interested in buying property. LTCG can be saved by investing in particular bonds issued by Rural Electrification Corporation (REC) or National Highway Authority of India (NHAI) under Sections 54 and 54EC within 180 days from the date of sale of the property. Bonds however, have a lock period of 3 years. Also, up to 50 lakhs can be invested in bonds whereas the rest of the money is taxable.Time is opportune to invest. Go ahead. Gain and Save Tax.