Purchasing and selling immovable property in India involves navigating complex tax regulations under the Income Tax Act, 1961, and Goods and Services Tax (GST) laws. Understanding these implications can help individuals ensure compliance and optimize financial outcomes.
Under Section 194-IA of the Income Tax Act, buyers must deduct 1% TDS on property transactions exceeding ₹50 lakh. If the seller’s PAN is unavailable, the TDS rate increases to 20%. TDS applies to the entire sale consideration, even if there are multiple buyers or sellers.
TDS Deposit: TDS must be deposited using Form 26QB within 30 days from the end of the month in which it was deducted.
TDS Certificate: Buyers must issue Form 16B to the seller, available 10-15 days after TDS deposit.
Non-compliance with TDS provisions attracts penalties under Section 194-IA, including:
Late Filing Fee: ₹200 per day under Section 234E, up to the TDS amount.
Interest for Delay:
1% per month for late deduction.
1.5% per month for late deposit.
Additional Penalties: ₹10,000 to ₹1,00,000 for non-filing or errors in TDS statements under Section 271H.
For property transactions exceeding ₹30 lakh, registrars must report details to the Income Tax Department via Form SFT-012. These transactions are reflected in the buyer’s Form 26AS, ensuring greater scrutiny by authorities.
The tax treatment of gains depends on the holding period of the property:
Short-Term Capital Gains (STCG): If sold within 24 months, gains are taxed at the seller’s applicable income slab rate.
Long-Term Capital Gains (LTCG): If held for more than 24 months, sellers can opt for:
20% tax with indexation benefits, or
12.5% tax without indexation (applicable for transactions post July 23, 2024, if purchased on or after this date).
GST is applicable to under-construction properties, classified as a supply of services. Completed properties or those with a certificate of completion are exempt from GST.
Residential Properties:
Affordable Housing: Defined as properties with a carpet area of up to 60 sqm (metro cities) or 90 sqm (non-metro cities) and costing up to ₹45 lakh. GST rate: 1%.
Non-Affordable Housing: Properties not meeting affordable housing criteria. GST rate: 5% (without ITC).
Commercial Properties: GST rate: 12% (with ITC).
Under Section 17(5) of the CGST/IGST Act, 2017, ITC is generally blocked for construction-related expenses but allowed in specific cases:
When expenses are not capitalized and debited to the Profit & Loss Account.
For contractors providing further taxable services.
For construction of plant and machinery used in business operations.
Failure to comply with GST regulations can result in interest, penalties, and additional scrutiny.
Tax implications for purchasing and selling immovable property in India are multifaceted. Buyers must ensure proper TDS deduction and deposit, while sellers need to account for capital gains taxes. Additionally, GST applies to under-construction properties, with varying rates based on property type. Consulting tax experts can help navigate these complexities, ensure compliance, and avoid penalties.
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