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All You Need To Know About Tax Paid on the Sale Of Property

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Are you planning to sell your property? Let's talk about taxes to be paid on the sale of property and how to save money. We'll simplify the complexities and provide you with a clear understanding of taxes paid when selling a house.

Who Levies Taxes on Property Sales?

During the sale of a property, you'll encounter taxes from the central and state governments. Some taxes paid on selling a house are borne by the seller, while the others are the buyer's responsibility.

Tax Paid on Property Sale: The Direct Tax

1. Capital gains tax

The tax you pay when selling a property is the capital gains tax. The tax rate depends on how long you've owned the property. You will pay a flat 20% rate if it's been over three years. Selling within three years means your tax aligns with your Income Tax Slab. Long-term real estate gains get taxed at 20% with a 3% cess.

2. TDS on sale of property

This tax deduction at source was introduced in June 2013. Under this system, the buyer deducts 1% TDS from the sale amount. It's important to note that the buyer pays this 1% tax, indirectly affecting the seller. This rule applies to transactions valued at 50 lakhs or more.

Important information about TDS: You can pay TDS online or at a bank branch. For NRIs, Form 27Q is required.

Indirect taxes on Selling Property

Sometimes, the buyer pays indirect taxes that the seller ultimately bears. These include:

1. Service tax

This tax gets imposed on the sale of under-construction property. The rates for service tax vary, falling within the range of 3.75% to 4.5%. The specific rate depends on the property's square footage and transaction value.

2. VAT (Value added tax)

State governments may levy VAT on the sale of property under construction.

How to Save Tax on Property Sales?

Are you looking at options to reduce your tax paid on the sale of property? 

  • Reinvest (Section 54): Invest the proceeds from the sale of property in another property within three years to save on capital gains tax paid on house sale for only a once-in-a-lifetime exemption.
  • Capital Gain Account Scheme (CGAS): Deposit the profit in a public sector bank under CGAS. However, you must invest in another property within three years; otherwise, a 20% tax and 3% cess on long-term capital gains apply.
  • Bonds (Section 54EC): To save on long-term capital gains tax, consider investing in specified financial assets issued by NHAI and REC. The maximum annual investment is INR 50 lakhs, but be cautious as transferring or taking a loan against these bonds within three years incurs capital gains tax.

The Final Word

Selling property comes with tax paid on the sale of property. Still, you can minimise the impact by understanding different options. Utilise exemptions and rebates to your advantage and make informed decisions before finalising the sale agreement.

 

Frequently Asked Questions

1. Is TDS calculated on the total transaction value or over 50 lakhs?

Ans: TDS gets calculated on the total transaction value, which applies when the transaction exceeds 50 lakhs.

2. If I can't invest my capital gains immediately, can I save tax using CGAS?

Ans: Yes, you can park your gains in a public sector bank under CGAS, but you must invest in another property within three years.

 

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