Selling Your House? Understand The Tax Implications!

There may come a time in your life when you choose to liquidate your home, which is your most precious possession. This choice may have been made for a number of reasons, such as upgrading to a nicer home, moving to a different city or country, or perhaps experiencing financial difficulty. However, there is something that requires your attention: in India, property sales are subject to tax payment. All property kinds, with the exception of agricultural land, are subject to tax upon sale. Any revenue from the sale of real estate is subject to two forms of taxes for the property seller. The same regulations also apply to NRI property owners. Continue reading the blog to learn more about these taxes.

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Taxes to be paid for Different Types of Property Sales

The taxes that must be paid when selling a property are as follows:


Tax Is Withheld at Source (TDS)

It is a tax that is paid with any payment to the vendor, as the name implies (i.e. at the source of the transaction being done). TDS is placed on behalf of the seller by the buyer, who receives payment from the seller.

According to Section 194 IA of the Income Tax Act of 1961, TDS is applicable at 1% of the entire sale price of the property.


Information needed when submitting TDS for a property sale

The key information needed to deposit TDS when selling a property is listed below.

  • PAN cards for both the buyer and the seller
  • Residences of the Buyer and the Seller
  • Residential status of the property’s seller
  • Full address of the asset that will be sold
  • Date of the Accord
  • the payment date
  • Total exchange price
  • sum total of payments


On the sale of real estate, whether online and offline, buyers can pay TDS. They must go to the Income Tax Department’s online portal, complete Form 26QB, and follow the instructions in order to make the TDS payment online. On the other hand, they can visit any bank of their choosing and complete the same form if they wish to pay TDS when selling a property offline.

Residency in India is required to complete Form 26QB in order to pay TDS on the sale of a property. NRIs must complete Form 27Q for this.


Tax on Capital Gains

For the purposes of calculating income taxes, immovable property such as land, buildings, apartments, single-family homes, etc. is referred to as a capital asset. As a result, the proceeds from the sale of a property are considered capital gains and are subject to capital gains tax.

This tax does not apply to any land that is used for agriculture.


Various Capital Gains

Short-term capital gains and long-term capital gains are the two other categories of capital gains.


Gains Made Recently (STCG)

When a certain property is sold within 24 months after being purchased, the STCG Tax is applied. The original owner’s date of purchase will be taken into account if the property was inherited.

The STCG for that property is the difference between the sale price and the acquisition price. This STCG sum is included in the seller’s normal income and is taxed in accordance with the seller’s income tax bracket.


Gains over the Long Term (LTCG)

When a certain property is sold after 24 months of purchase, the LTCG Tax is applied. Budget 2017 changed the duration from three years to two years.

20% is the LTCG Tax rate. This is in addition to the ordinary income tax that the seller must pay on the money received as a wage or business profit.

The LTCG is the difference between the purchase price and sale price of the property, much as the SCTG. However, the cost of inflation during the sale of the property is taken into account when calculating the LTCG. To determine a reasonable cost of purchase of the property in terms of its current-day value, the benefit of indexation is accessible.

The inflation-adjusted cost of a purchase is calculated via indexation. The formula is as follows:

(Index Value of Sale Year – Index Value of Purchase Year) x Original Purchase Price


An illustration of long-term capital gains

Take the case of the Navi Mumbai-based banker who paid Rs. 20 lacs for a 2 BHK row house in May 2004. In November 2019, she sold that home for Rs. 90 lacs.

Here, even though she paid Rs. 20 lacs for the house, she is exempt from paying tax on Rs. 70 lacs (Rs.90 lacs – Rs.20 lacs). Instead, the following formula can be used to determine her home’s inflation-adjusted purchase price:

  • Cost of acquisition: 20 lacs
  • Price of sale: Rs. 90 lacs
  • (FY 2004-2005): 113 Cost Inflation Index of the Purchase Year
  • (FY 2020–21) Cost Inflation Index for the Sales Year: 301
  • The Indexed Cost of Acquisition is equal to 20 x (301/113) or Rs. 53.27 lacs.


A person would be required to pay LTCG Tax on the gain of Rs. 36.73 lacs (Rs. 90 lacs – Rs. 53.27 lacs). The LTCG due in this case is Rs. 7.35 lacs (20% of Rs. 36.73 lacs).

You may get the inflation index’s values here. For properties purchased before to 1 April 2001, the fair market value of the property as of that day may be stated and utilised as the property’s initial purchase price.

It should be noted that the entire cost of acquisition may also include stamp duty, registration fees, and any costs associated with post-purchase property upgrades (such as remodelling, home renovations, enlargement, etc.). However, the price paid for these upgrades should be indexed to the specific year in which they were made.

Additionally, the costs associated with selling the property might be subtracted from the sale price. For instance, the entire sale price taken into consideration would have been Rs. 89 lacs if a person had paid Rs. 1 lac in brokerage.


Long-Term Capital Gains Example #2

Take one person as an example, as stated above. Here, she spent roughly 4 lac rupees on renovations to her home in May 2010, and 1 lac rupees on commission to an estate agent in November 2020 to sell the property.

  • Cost of acquisition: 20 lacs (including stamp duty and registration charges paid)
  • 4 lacs for home improvements
  • Price of sale: Rs. 90 lacs
  • One lakh rupees was given as brokerage (commission) to the estate agent.
  • (FY 2004-2005): 113 Cost Inflation Index of the Purchase Year
  • Renovation cost inflation index for the fiscal year 2010–2011: 167
  • (FY 2020–21) Cost Inflation Index of the Sale Year: 301
  • Indexed cost of buying price equals 20 times (301/113) for a total of Rs. 53.27 lacs.
  • Indexed cost of remodelling costs equals 4 times (301/167), or Rs. 7.2 lacs.


Estimating the LTCG amount:

  • Total cost of purchase: 60.47 lakh rupees (53.27 lakh rupees plus 7.2 lakh rupees).
  • Price of the entire sale: Rs. 89 lac (Rs. 90 lacs – Rs. 1 lac)
  • Amount of LTCG: Rs. 19.53 lacs (Rs. 89 lacs – Rs. 60.47 lacs)
  • In this scenario, a person will only be subject to LTCG Tax of Rs. 3.9 lacs (20% of Rs.


Important Elements That Affect Capital Gain Tax on Property Sales

See a few of the key elements that influence how the capital gain tax on the sale of the property is calculated below.

Cost of the Property: The cost of the asset has an impact on the capital gain tax due upon sale. This is so because the property’s renovation costs are also included in the total taxable amount. For instance, let’s say you paid Rs. 40 lakh for a property and Rs. 10 lakh to renovate it. On Rs. 50 lakh, capital gain tax would be imposed.

Holding Period: Your tax burden is impacted by the time you hold onto the property as the owner before selling it. You can owe more in taxes if the transaction is classified as a short-term capital gain. However, if it is regarded as a long-term capital gain, you might have to pay 20% in capital gain tax when you sell the house.

New Property Investments: According to Indian IT Law, you may only have to pay a small amount of capital gain tax if you reinvest the money you receive in exchange for your property within a certain time frame.

Property ownership: Your tax liability is also impacted by the number of properties you own. If you own many homes, you might have to pay a greater capital gain tax when you sell one of them. Owners of a single property, however, pay a small amount in taxes.


Conclusion: Tax on Property Sale

We encourage you to keep the tax repercussions in mind if you ever decide to sell your house. If you are aware of such an implied loss, you could incur significant financial loss. It would be beneficial to perform the calculations shown above prior to approving a sale deed.




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