At the time of any real estate transaction, there are several taxes on sale of property. Some of these taxes on sale of property are to be borne by the Buyer and some are borne by the Seller. Moreover, there are some taxes on sale of property which are levied country wide and there are some taxes on sale of property which are levied on specific states only.
The taxes levied on sale of property are:-
Capital Gains Tax is levied on the profit/capital gain that arises at the time of sale of property. This tax is to be paid by the seller of the property and is required to be paid by all taxpayers irrespective of the state in which the property is situated.
The Capital Gain would be computed in the following manner:-
|(Less)||Cost of Acquisition||(xxx)|
|(Less)||Cost of Improvement||(xxx)|
|Capital Gains Tax||xxx|
For a detailed note on the computation of Capital Gains Tax, kindly refer this link: – Computation of Capital Gains on Sale of Property.
If the property was held by the seller for a period less than 3 years, tax would be levied as per the Income Tax Slab Rates of the Individual.
- Recommended Read: Latest Income Tax Slab Rates
If the property was held for more than 3 years, Capital Gains Tax would be levied at the rate of flat 20%. In case of Long Term Capital Gains, benefit of Indexation would also be allowed to the seller of property.
- Recommended Read: Cost Inflation Index to be considered for Long Term Capital Gains
In case of Long Term Capital Gains, if the seller reinvests the amount in specified investments, he can also avail of exemption from Capital Gains Tax.
- Recommended Read: Exemption from Long Capital Gains Tax
With effect from 1st June 2013, the buyer of property is required to deduct TDS @ 1% from the amount payable to the seller. This amount is then required to be deposited by the buyer with the income tax department.
The buyer does not have to pay this amount from his own pocket. This amount of TDS @ 1% is required to be deducted from the amount payable to the Seller. TDS on Property is required to be paid by all taxpayers irrespective of the state in which the property is situated.
However, TDS on Property @ 1% is only applicable if the transaction value if more than Rs. 50 Lakhs. For a detailed note on TDS on Property, kindly refer the following link.
- Recommended Read: TDS on Property Sale @ 1%
If the property that is being sold is an under construction property, Service Tax would also be required to be paid on such property. This Service Tax component is only required to be paid if the property is under-construction and not in case of fully constructed properties.
The effective rate of Service Tax on property is 3.75% or 4.5% depending on the size of the property and the transaction value. Service Tax on sale of property is required to be paid by all taxpayers irrespective of the state in which the property is situated. This Service Tax is required to be paid by the Buyer to the Seller who in turn deposits it with the Govt.
- Recommended Read: Service Tax on Property @ 3.75% / 4.5%
As VAT is a state level subject, some states levy VAT on sale of under-construction property and some states don’t levy any VAT on sale of under construction property. VAT is required to be paid by the Buyer to the Seller who in turn deposits it with the Govt.
This article published in the Economic Times, gives an idea on the levy of VAT on Sale of Property and the validity of such a levy – Supreme Court Ruling on VAT on Property.
At the time of transfer of title of property and registration with the Govt, stamp duty is required to be paid on property. The rate of stamp duty differs from state to state. Some states also give a concession in case the new owner of property is a female.
This first time buyers guide to stamp duty on property published on Moneycontrol is useful in understanding the concept of stamp duty on property.