GST & Income Tax Guides India

Income Tax 19 April 2025 · Adv. Mahtab Ali Ansari 1 min read

income tax property law capital gains

When dealing with real estate transactions, understanding the income tax consequences is crucial for both buyers and sellers. Here's a comprehensive guide to help you stay compliant and make informed decisions:

For Sellers: Capital Gains Tax

Short-Term Capital Gains (STCG):
- Applicable if property is sold within 2 years of purchase.
- Gains are added to your income and taxed as per your slab rate.
Long-Term Capital Gains (LTCG):
- Applies when the property is held for more than 2 years.
- Taxed at 20% with indexation benefits.
- Exemptions available under:
  - Section 54: Reinvestment in residential property
  - Section 54EC: Investment in notified bonds
  - Section 54F: Sale of other than residential property and reinvestment

For Buyers: TDS and PAN Compliance

TDS Deduction:
- Buyer must deduct 1% TDS on property purchases above ?50 lakhs under Section 194IA.
- TDS is to be paid via Form 26QB, and Form 16B must be issued to the seller.
PAN Requirement:
- Buyer must ensure seller's PAN is available; else TDS is deducted at 20% instead of 1%.

Joint Ownership & Tax Sharing

If the property is jointly owned, capital gains or deductions are split based on the share of ownership.
Each co-owner should report their share correctly while filing tax returns.

Under-Construction Property: GST Applicability

5% GST (without Input Tax Credit) applies on under-construction flats.
No GST is applicable on ready-to-move-in flats with a completion certificate.

Important Tips:

Always retain sale deed, payment records, and valuation certificates.
Consider getting a capital gains report from a tax expert before selling.
File income tax returns correctly to avoid scrutiny under Sections 143(1) or 148.

Frequently Asked Questions

What is the TDS rate on property purchase above 50 lakhs in India?

Under Section 194IA, a buyer must deduct 1% TDS on property purchases exceeding ₹50 lakhs. The TDS must be deposited using Form 26QB within 30 days from the end of the month of deduction, and Form 16B must be issued to the seller. If the seller does not provide PAN, the TDS rate increases to 20%.

What is the long-term capital gains tax rate on sale of property in India?

Long-term capital gains (LTCG) on property held for more than 2 years are taxed at 20% with indexation benefits under Indian income tax law. Indexation adjusts the cost of acquisition for inflation using the Cost Inflation Index (CII), reducing your taxable gain. Exemptions can be claimed under Sections 54, 54EC, and 54F to reduce or eliminate this tax liability.

How to save capital gains tax on sale of property under Section 54 in India?

Under Section 54, an individual or HUF can claim exemption from LTCG tax by reinvesting the capital gains in purchasing or constructing a new residential property. The new property must be purchased within 2 years or constructed within 3 years of the sale. The exemption is limited to the amount reinvested and applies only to one residential property.

Is GST applicable on purchase of under-construction flat in India?

Yes, GST at 5% (without Input Tax Credit) is applicable on under-construction residential flats in India. For affordable housing projects, the GST rate is 1%. However, no GST is levied on ready-to-move-in flats that have received a completion certificate from the competent authority, as such transactions are considered immovable property sales outside the GST ambit.

What happens if property is sold within 2 years of purchase in India?

If a property is sold within 2 years of its purchase date, the gains are classified as Short-Term Capital Gains (STCG) under Indian income tax law. These gains are added to the seller's total taxable income and taxed according to the applicable income tax slab rate. No indexation benefit is available, and exemptions under Section 54 or 54EC cannot be claimed for short-term gains.

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Income Tax Implications on Sale and Purchase of Property in India

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