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How to save tax on property – For sellers

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When selling a property, sellers want to know how much tax they’ll pay and whether there is any way to reduce or avoid the tax. The article below focuses on capital gains tax for sellers who are selling a property.

A self-occupied house gives you two avenues of saving taxes which are the payment of interest and repayment of principal. You can get Rs 2 lakh deduction under section 24b of the Income-tax Act, 1961 on interest payment and Rs 1.5 lakh on principal repayment under section 80C.

What is a Capital asset?

Capital assets include land, buildings, jewelry, vehicles, trademarks, machinery, patents, and licenses. When a capital asset is sold and any profit is received, it is known as capital gains. Agricultural land is not a capital asset.


Capital gains tax on residential property for sellers:

To understand capital gains, let’s consider an example. Regarding residential property, there are two types of capital gains tax: long-term capital gain and short-term capital gain. We will now discuss these two taxes.

  1. LTCG (LONG-TERM CAPITAL GAINS)- If you hold a property for more than 24 months, you pay a flat rate of 20% tax on any capital gains. Exemptions are available in this.
  2. STCG (SHORT-TERM CAPITAL GAINS)- If you hold the property for less than 24 months, you will be charged short-term capital gains tax. The government taxes the individual at their slab rate of income tax. If you are in the 30% bracket, then STCG will be 30%. You do not receive any benefits for indexation (i.e., inflation). The amount for which you purchased the property and sold it, the difference will be taxed.

The following chart illustrates and differentiates between long-term capital gains and short-term capital gains.

CAPITAL GAINS ON RESIDENTIAL PROPERTY                STCG                         LTCG
TIMELess than 24 months(2 years)        More than 24 months (2 years)
TAX@Slab       Flat rate 20%
EXEMPTIONNo    Yes
INDEXATIONNo       Yes

Capital gain tax exemption:

Furthermore, we will discuss three ways in which you can save on long-term capital gains tax when selling residential property and other assets.

  1. SECTION 54- Under section 54, individuals and Hindu undivided families (HUF) can claim tax benefits on residential property they own. The minimum holding period is two years. It is important to note that only residential properties qualify for this section; commercial properties do not qualify. Next, the residential property must be a constructed property that you are selling. If you are selling the residential plot, then you will not get any benefit from it. If you invest the profits received from the proceeds in the purchase of 1 or 2 residential properties or the construction of another property, you will get a complete exemption from long-term capital gains tax.
    1. The capital gains from selling the property must be put in a new property which can be purchased within 1 year of the sale or within 2 years of the sale, in order to claim tax exemption. Similarly, if you are constructing a property, then for the forthcoming 3 years, if construction is completed, tax exemption will be available for you. Here, you only need to invest the number of capital gains i.e. profits; you do not have to invest the entire amount.
    2. FOR EXAMPLE: Twenty years ago you purchased a residential property for Rs 60 lakhs. And now sold it for Rs 90 lakhs. So 30 lakhs is a long-term capital gain (LTCG). Invest this 30 lakhs in 1 or 2 properties or some construction work; you don’t need to invest the entire 90 lakhs. The maximum capital gain which you can claim is up to Rs 2 crores. This exemption can be claimed once in a lifetime and will be reversed if you sell this new property within 3 years from its purchase date. If you invest this amount into bank fixed deposits or a savings account, this cannot be claimed as an income tax exemption. Banks offer a capital gains account scheme if you wish to claim the tax exemption.
  2. SECTION 54EC- Any individual can open a capital gains account. Any asset like; stocks, mutual funds, bonds, and house property may be used as collateral for this type of account. A 3-year holding period is required, with the ability to invest within 6 months. The maximum amount that can be supported is 50 lakhs, but all must be invested in specified bonds with a 5-year lock-in period. These bonds offer good returns on investment and are available only through this type of account.
  3. SECTION 54F- Now, finally, we come to Section 54F. In this section, any individual or Hindu Undivided Family (HUF) can claim tax exemption on capital assets other than a house property. Such assets include bonds, stocks, commercial property, and plots. The person taking the exemption shall not hold more than one house property. To acquire the asset’s value, you must buy residential property or construct it. This section does not cover any plots. The time limit for claiming tax exemption is 1 year back or 2 years forward if you purchase a property; construction is forward 3 years.

There are some other conditions under SECTION 54F and i.e.;

  1. The entire sale proceeds must be invested. Invest the entire 90 lakhs and not a partial amount or capital gains on which you can claim full exemption. You can only claim a partial exemption if part of the money is invested.
  2. If you sell this new property within three years of its purchase, the exemption will be reversed.
  3. If you want to claim the capital gains tax exemption, invest in a capital gains account. You cannot claim this exemption on a savings account.

Things you should know about GST in Real Estate

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Centre's FY22 GST compensation amount should be higher than projected Rs 1.58 lakh crore: Opp-ruled states - The Economic Times

OVERVIEW OF GST: 

In 2000, the late Atal Bihari Vajpayee, the then prime minister of India, initiate a committee to draft new indirect tax law and i.e. GST which stands for Goods and Services Tax. It was launched to replace multiple indirect taxes in India. Such as excise duty, value-added tax (VAT), services tax, purchase tax, octroi, entry tax, luxury tax, and so on. Here, propertywala brings every fact and figure that you should know about GST in real estate.

DEFINITION:

The Goods and Service Tax Act was driven in Parliament on 29th March 2017 but it came into effect on 1st July 2017. It is the only tax that applies all over India and imposes on the supply of certain goods and services. However, GST does not replace customs duty, which is still required on imported goods and services. Different categories of products and services attract different tax rates under GST.

Now, we will go ahead with the GST regime which is given by our Honorable Prime Minister Shri Narendra Modi, In his words, the Goods and Services Tax (GST) is “a path-breaking legislation for New India”. Then, GST is not just a tax reform but a milestone in realizing Sardar Vallabhbhai Patel’s dream of building ‘Ek Bharat – Shrestha Bharat’.


GST APPLICABILITY IN REAL ESTATE:

APPLICABLE –
1. It is applicable to under-constructed flats only.
2. It is because the GST does not cover the real estate sector under its range. Therefore, the tax rate applicable on a property is charged under ‘work contracts.

 
NOT APPLICABLE –
1. GST does not apply to ready-to-move-in flats, plots, and lands.
2. Upon completion and receiving the occupancy certificate i.e.(OC), the property is categorized as ready to move in. That is why a developer cannot charge GST on selling ready-to-move-in homes.

GST RATE ON REAL ESTATE 2022:

Everyone has a dream of a house. Well! It is fine if you are planning to buy a property. Because buying the right property is one of the biggest achievements in life. So, home buyers in India have to pay GST on the purchase of under-construction properties such as flats, apartments, and bungalows. Before hurrying on to the process, the foremost thing you must ask yourself is, “what is the GST rate on real estate?”

PROPERTY  TYPEGST RATE FROM APRIL 2019
Affordable housing1% without ITC (Input Tax Credit)
Non-affordable housing5% without ITC
According to the table, if the property is affordable,  the GST rate from April  2019 is only 1% without ITC. Also, for non-affordable housing, the GST rate is 5% without ITC.

WHAT IS ITC?

Input Tax Credit refers to the tax already paid by a person on any purchase of goods and/or services that are used or may use for business. Therefore, it is available as a deduction from tax payable.

AFFORDABLE HOUSING AS PER GST:

According to government norms, housing units worth up to Rs 45 lakhs are referred to as affordable housing in metro cities in which carpet area measures up to 60 sq. meters. The Delhi-National Capital Region, Bengaluru, Chennai, Hyderabad, the Mumbai-Kolkata are categorized as metropolitan regions. A housing unit in non-metro cities barring to be an affordable house, if it costs up to Rs 45 lakhs and has a carpet area of up to 90 square meters as mentioned in the given table.

CITIESPRICECarpet AREA (SQ/M)
METROSup to  Rs. 45 lakhs60 sq./m
NON- METROSbelow Rs.4590 sq./m

SOME FACTS TO BE NOTED WHEN CONSIDERING GST IN REAL ESTATE:

  1. It does not subsume the stamp duty and registration charges, which you still have to pay.
  2. Seller increases the cost of ready-to-move-in properties to factor in the GST cost. So, overall the under-constructed properties are still cheaper than ready-to-move-in properties. 

That’s all you need to know about GST when it comes to real estate.

All you need to know about the sale deed

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What are the steps in the process of buying a property?

Let’s first discuss the steps in buying a property. When purchasing a property, the first step is negotiating the price with the seller. To confirm the booking, you must pay an advance to the seller. A builder must first pay a 10% deposit and sign a booking form before purchasing a property. After the buyer and seller agree on terms, they sign a contract that includes a time period for payment (generally two to three months). But this is not a sale deed. It’s important to note the information, facts and details in a sale deed and here’s everything you need to know.

A sale is completed when the seller transfers ownership rights to the buyer. The deed of sale is drawn up and registered with a specific state authority, making it valid.

How is a Sale Deed Executed? – RoofandFloor Blog

What is Sale deed?

The deed of sale is a legal and final document transferring ownership of a property. It describes the terms of the sale and is signed by both the buyer and the seller. Depending on its purpose, a contract of sale may also be called a contract of sale or a contract of sale mortgage. A bill of sale is governed by the common law, the Contracts Act, the Transfer of Property Act, etc. It uses certain terms that are standard across all jurisdictions, but certain details relate more specifically to the Indian context such as consideration (usually the same as the amount paid).

Benefits of Sale deed:

  1. Protects Parties – A well drafted deed protects both the buyer and the seller by preventing ambiguity and minimizing legal risks.
  2. Defines The Area – Buyers find it helpful to specify the square footage and locations of properties on paper.
  3. A sale deed is a legal document that concludes a sale. It is enforceable by law.

Clauses / Elements in the Sale deed you should know:

The sale deed includes the following details:

  1. Details of the party – The details of the party include the names, ages, and addresses for both buyers and sellers.
  2. Details of the property – The location of the property, a description of the property, and construction details.
  3. Payment details – Payment details will show you the price of your property. It also lists the payment mode like a credit card (Visa, MasterCard, Discover) or direct transfer from a bank account.
  4. Handing over the original papers of the property and the possession details.
  5. No dues on the property – On the property, no dues, such as loans, tax, liability, and other dues.
  6. Indemnity clause –  An indemnity clause in a sale deed provides protection for the buyer’s interests. It is important to draft the document with care to avoid future disputes. Indemnity clauses under the sale deed seek compensation if there are any losses or expenses in the future.

What is the process for executing a Sale deed?

  1. Draft sale deed – To execute a sale deed, you need to first draft a sale deed. This document records all of the property owner’s rights, duties, and interests in the property. This includes encumbrances, liens, loans, taxes, mortgages and deeds for neighboring properties if they do not belong to the same legal entity.
  2. Pay Stamp Duty – Stamp duty is a tax paid to the Indian government on the sale of real estate. It is usually paid by the buyer and varies from state to state. For more details see our detailed video on stamp duty.
  3. Signed – Both buyer and seller must sign the sales deed. This document ensures that they have both agreed to the terms of the sale transaction. The deed must be registered within four months of the date it was signed in order to be valid.
  4. Registered – A sale deed serves as both proof of ownership and an essential legal document required for taxation purposes. It is an affidavit signed by both the seller and buyer. This is submitted to the revenue department when registering property under several tax laws. It must be registered within 4 months of signing the document. If this deadline is exceeded, you risk losing your right to purchase the property.
  5. The seller gives the original documents – The seller delivers the original documents and the buyer pays to execute the sale deed.

The following are the important, procedural, and legal terms you should know about sale deed if you are planning to sell your house.

Best tips to hire a broker in India

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Real estate is one of the largest industries in India. There are several companies of real estate agents who work as intermediaries between buyers and sellers of property. Finding an agent for real estate can be a difficult task. There are so many qualities and attributes to look for that finding someone who has them all is impossible. However, there are some basic qualities and tips to hire a broker in India.

Designated Agency Duties & 4 Good Reasons for an Exclusive Buyer Brokerage Agreement - Illinois REALTORS

Here’s what you should know before hiring a broker in India:

  1. Whenever we hire a broker for our real estate transaction, we must list our requirements clearly. For example, what type of property you want, locality, etc. As brokers don’t specialize in the entire area. So, they might show options that they’re selling. So, make it your job to be clear about what you want to purchase.
  2. If you are looking for a best real estate broker, choose a registered one. This will provide you with another level of trust and credibility. The Real Estate (Regulation and Development) Act, 2016 (RERA) requires real estate brokers to be registered with the state RERA authority.
  3. You should always ask about the latest pricing and gauge the broker’s market knowledge. Excelled brokers always know about their localities’ future developments and capital rates. They should have good interpersonal skills and find out how good they are at conversing with clients.
  4. You need to find out how many years they have been in the real estate business, their record on selling the property, the number of deals they cracked, what their credentials and qualifications are if they have experience, etc. Ask all brokers you are communicating with for details on previous clients and speak to the clients so that they can also give their reviews on that particular broker.
  5. Find an agent who will spend enough time with you until you find a property that suits your desires. A broker should understand the nuances and will advise you accordingly.
  6. Buyers need to find a broker who has good intentions and should be thinking about your benefit. 

Now you know how to choose a good broker, and this is the end of the best tips to hire a broker in India.

How to search brokers in India:

  1. You can also search online on platforms like propertywala.com.
  2. Try to talk to at least two to four brokers before finalizing, and try to discuss all talked-about matters with expectations.
  3. Try to connect on call, see his office, and have a meeting with him for your trust.