Explained: Tax implications for home buyers and sellers

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Tax compliance is one key aspect of which both buyers and sellers need to be mindful of. While buyer has to pay stamp duty, the seller has to bear the burden of capital gains tax.  Both, the buyer and the seller have to bear the burden of taxes on an individual level. Let’s find out in detail:

While buying a property:

Income tax deductions: Most of the home buyers borrow a home loan to meet any shortfall your finances. However, home loan comes with certain tax advantages. You get an exemption of Rs 1.5 lakh under Section 80C of the Income Tax act on the principal paid against the home loan. A deduction of Rs 2 lakh is also allowed on the interest payment if the property is self-occupied.

You can avail the tax benefits with immediate effect for ready-to-move-in property, but not when it is under construction. Besides, if you are a first-time home buyer, you can get an additional tax benefit of Rs 50,000, if the loan amount is not more than Rs 35 lakh and the value of the property is not more than Rs 50 lakh.

Stamp duty: It is paid by the buyers for the legal recognition of property. It varies from state to state depending upon size, area rates, and use of the property. Also, if the property is registered in the name of a woman, you get a concession of 1% on the stamp duty.

Registration charges: The important documents and contents of the property transaction are required to be registered with the registrar’s office.  Buyers have to pay a registration fee of 1% on the total cost of the property.

Goods & Services Tax (GST): Under GST, a single tax rate of 12% is applicable on properties under construction. However, GST is not applicable on ready-to-move-in properties which was the case in the previous taxation regime.

Tax deducted at source(TDS): According to CA. Kapil Mittal, Partner VJM & Associates LLP, TDS at the rate of 1% should be deducted by the purchaser if the sale consideration exceeds Rs 50 lakh. If the PAN of the purchaser not available and sale consideration exceeds Rs. 50 Lakh, it goes up to 20% .

While selling a property

Capital Gains Tax: If the property is sold within 2 years from the date of acquisition, short-term capital gain Tax(STCG) will be levied. After two years, Long-Term Capital Gains (LTCG) tax is levied at a flat rate of 20%. However, in case of LTCG, indexation benefit is allowed.

If a property is sold within five years of purchase, the tax deduction benefits availed during this period for principal repayment will get ceased immediately along with the deduction benefits claimed for stamp duty and registration charges. Such benefits are considered as taxable income in the year the property is sold.

Re-investment Benefits: If the seller reinvests the amount from selling the property in specified investments within 6 months, he can also claim exemption from Capital Gains Tax. The investments made under sections 54 & 54EC of the Income Tax Act are required to be held for a specified period of 3 years and are subject to certain conditions.