So, buying and selling immovable property in India is not easy.
First of all, the payments made to purchase the property are not just by banking mode. In most of the cases, the buyers and sellers are forced to adopt a mix of both cash and banking mode. (As per Section 269ST of Income Tax Act 1961, any payment in cash for purchase of property exceeding Rs. 2,00,000 is not allowed, this will attract penalty of amount equal to 100% of amount of cash payment.)
Leaving all this apart, lets continue discussion on the taxation aspect governing such transactions.
Here, we will discuss on two values:
1. Stamp duty value (SDV): The value that is determined by the local authority as the value of the property.
2. Sale value: The actual sale price.
After knowing the two values, let us acquaint you to a few more terms:
1. LTCG for immovable property: If the property is sold after owning for more than 2 years.
2. STCG for immovable property: If the property is sold on or before owning for 2 years.
3. Indexed cost: Actual cost of property*CII of the year of transfer/ CII of the purchase year.
[ LTCG = Long Term Capital Gain, STCG = Short Term Capital Gain, CII = Cost Inflation Index]
The classification of LTCG and STCG is needed because LTCG is taxed at 20% while STCG is taxed as per slab rate of the assessee.
So, from a layman point of view, when sale of a property is done the capital gain should be calculated as below: Sale price less Cost, correct?
Income tax says this too, but it has its own definition of sale price and cost.
So what is sale price as per income tax when you sell an immovable property?
1. If sales consideration is less than SDV, then SDV will be sale price. (Case B and D in the below table) [Note in this case: Sec 56(2)(x) of the Act will apply to the buyer)
2. However, if SDV does not exceed more than 110% of consideration then sales consideration will be sale price. (Case A and C)
3. If sale value is greater than SDV then sales consideration will be the sale price (Case E below)
Illustration:
Particulars | Stamp Duty Value (SDV) | Sales Consideration | Sale value for Income tax |
Case A | 1,08,00,000 | 1,00,00,000 | 1,00,00,000 |
Case B | 1,19,00,000 | 1,00,00,000 | 1,19,00,000 |
Case C | 1,10,00,000 | 1,00,00,000 | 1,00,00,000 |
Case D | 1,10,90,000 | 1,00,00,000 | 1,10,90,000 |
Case E | 1,00,00,000 | 1,50,00,000 | 1,50,00,000 |
Now what is cost?
Cost is indexed cost if it’s LTCG, but if its STCG then it’s the actual cost. (Note that there will be separate adjustments for cost of improvement incurred on the immovable property, which is not dealt in the below example)
So below is the Proforma that shows how capital gain is calculated in the hands of seller: (Excel sheet is attached below)
The below is the template: Password for the protected sheet is 12345678
Here, you can save tax by investing in accordance with Sec 54, 54B, 54F, 54GB, 54D, 54EC, 54G and 54GA of the Act.
We hope the above blog was helpful in enhancing your knowledge on the matter. In case of any queries feel free to get in touch with our team of experts.
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CA Umang Jain
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