Taxes on Property Purchases-A Few Points to Consider When Purchasing Real Estate
Everyone wants to earn money to buy a property. Buyers invest their hard-earned money in purchasing property and often find themselves in a difficult situation because while everyone is aware that tax must be paid when selling a property, few are aware that investing in a house will require the buyer to pay tax as well. As a result, certain considerations must be made when purchasing real estate.
1. Registrars’ reporting of high-value transactions
If the Stamp Duty Value of the property exceeds Rs.30lacs, Registrars/Sub-registrars are required to report the purchase and sale to the Income Tax Department. The property purchase/sale transaction must be documented on your Form No.26AS. So, whether you’re buying or selling a home for more than Rs.30 lakhs, you’re on the Income-tax Department’s radar.
The Internal Revenue Service will examine whether the buyer has shown sufficient profits on his tax return to cover the investment made in the purchase of a home and whether the seller has sufficiently shown capital gains and paid taxes. The Department is taking this measure to keep track of high-value transactions involving the selling and acquisition of a real estate by taxpayers.
2. TDS deduction pursuant to section 194IA
If a buyer purchases a property with a Sale Consideration of 50 lakhs or more, the buyer must subtract TDS at 1% and pay the balance to the seller. TDS is expected to be deducted on the value of the selling consideration, not the Stamp Duty Value of the land. TDS is also expected to be deducted when making an advance on a property purchase. It is not expected to be deducted if the taxpayer purchases agricultural land or property from an NRI.
After deducting TDS, the buyer must deposit the amount into the Central Government’s account and file Form 26QB. The sum deducted must be expressed in Seller’s Form 26AS, which can be used to demand TDS deducted.
3. Seller’s Sale Consideration
If the selling consideration is less than the Stamp Valuation Authority’s guideline value, Section 50C kicks in. It reads:
a) If Agreed Value > Guideline Value, then Sale Consideration = Sale Consideration
b) If Agreed Value < Guideline Value, then Sale Consideration = Guideline Value
It should be noted that 10% of relaxation is given. It means that if the property’s guideline value is 1.10 crores and the selling consideration is 1 crore, capital gains can be measured on that amount.
4. Income in the Buyer’s Hands
If a buyer purchases a property for less than the guideline value, the difference between the guideline value and the purchase price is taxable in the buyer’s hands under the head profits from other sources u/s 56(2)(x). A 10% discount or Rs.50,000/-, whichever is greater, is granted. It means that if you buy a property for 1 crore but the guideline value is 1.1 crores, nothing will be added to the buyer’s profits.
5. Cash payment/acceptance of the selling consideration
Taking/paying cash on the sale/purchase of immovable property is prohibited. If any person accepts/pays cash of Rs. 20,000/- or more as an advance or as selling consideration on the sale of immovable property, a penalty equal to the cash accepted on sale will be imposed.
6. Documentation to be maintained
You should keep the following documents-
a) Get yourself updated about what is the Circle rate of property which you are buying.
b) Agreement of Sale
c) Registry Papers
d) Bank statements
e) Loan papers if the loan is taken for the purchase of property
Note: These documents are not required to be uploaded while filing return of income but you should maintain documents in case your case is selected for scrutiny.
7. Reduced rates if the property is registered in the name of a woman
Stamp duty is a form of tax levied by the government on legal documents, typically for asset or property transfers. The stamp duty is based on the higher the consideration sum or the relevant circle rates for the property in the district. The fees differ from one state to the next. In the case of property registration in the name of a woman, you can check to see if your state provides reduced rates.
Stamp duty exemptions are available in some jurisdictions. Stamp duty (payable at the time of registration of property obtained by way of sale deed, conveyance deed, or gift deed) is 6% for males and 4% for females, according to the Delhi Government’s official website.