This post will discuss tax considerations on sale of residential immovable property and consequent tax implication and tax planning tips.
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Sale of Property not subject to tax
For a sale to be taxed under capital gains, it is important to consider if the asset being sold is a capital asset or not. A rural agricultural land is not classified as a capital asset and hence, consideration received on sale is not taxable.
Can you obtain cash against sale of property?
If the seller of the property obtains cash in excess of Rs. 20,000 (as advance / sale consideration), then a penalty equal to cash accepted on sale may be levied under Income Tax Act, 1961.
Can you hide disclosing a sale of property transaction?
Hiding a transaction to save taxes is tax evasion. In order to prevent cases of tax evasion, laws provide for reporting of high value transaction (value greater than 30 lacs) by registrar of properties to Income Tax Department. The same is available in Form 26AS of relevant year and may be scrutinized from return of income filed by the assessee.
Applicability of TDS on sale of immovable property
If value of sale consideration amounts to Rs. 50 lacs or more, then buyer must deduct TDS at 1% from every installment of payment made to the seller. The said TDS is then deposited with government treasury by filing TDS return (26QB / 27Q). The said TDS can be claimed by the seller in income tax return.
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Taxation on sale of Immovable Property
If period of holding is less than 2 years, it is classified as a short term capital asset and taxable at slab rate applicable to the assessee.
If period of holding is more than 2 years, it is classified as a long term capital asset and taxable at flat rate of tax at 20%. Further, tax liability is calculated on the difference of sale consideration and indexed value of purchase along with additions, if any.
Help me save taxes on this
Exemptions against income from sale of immovable property can be availed through multiple options listed below:
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