“Dive into the intricacies of taxation on the sale of immovable property in India. Understand capital gains, calculations, tax implications, and explore FAQs covering aspects like indexation benefits, renovations, inheritance or gifts, stamp duty impact, and strategies to save taxes through various investments. Get insights on navigating tax regulations and consult with professionals for comprehensive guidance on optimizing tax liabilities.”
When a property is sold in India, the profit earned is called capital gains. The person gaining benefits from these capital gains might be taxed, and he/she is required to pay the requisite amount of taxes on the amount of capital gains. However there are certain conditions to be followed in order to save taxes. Further there are also ways to reduce the capital gains taxes and in this article below are the frequently asked questions that will be helpful to understand how would be the taxation implications when an immovable property is sold:-
1. How the Gain or loss is calculated when an immovable property is sold?
Ans:- If a property is sold in November 2023 of Rs. 60 lakhs which was purchased in April 2018 for Rs.40 lakhs then the profit earned on this property is Rs. 20 lakhs. However since the property is held for more than 24 months the taxpayer would get the benefit of the indexation on this transaction.
The Cost Inflation Index for the Financial Year 2023-24 is 348 and for the financial Year 2018-19 (since the purchase happened in April 2018) is 280. So the capital gain would be calculated as follows:-
| Particulars | Amount (Rs.) |
| Sale Consideration of the property | 60,00,000 |
Less;- Indexed Cost of Acquisition
40,00,000/280*348 | 49,71,428 |
| Capital Gains | 10,28,571/- |
2. How much of amount of income tax is required to be paid when a Gain is calculated?
Ans:- If a property is held for more than 24 months then it is classified as Long term Asset and tax rate on the Long term tax is 20%. Whereas the property held for a period less than 24 months would be classified as Short term asset and the tax rate would be applicable as per the slab rates.
As per the FAQ 1 the Capital Gain was Rs. 10,28,571/- and the property was held for more than 24 months therefore the tax rate applicable would be 20% i.e. Rs.2,05,714/- (Rs.1028571*20%)
If there was no benefit of indexation then the Gain would have been Rs.20 lakhs and the tax would be Rs.400000/- (Rs.20 lakhs*20%).
3. Can we take the benefits of renovations or improvements done in the property for the purpose of income tax?
Ans:- Cost of Improvement is capital Expenditure incurred by an assessee in making any additions/improvement to the capital asset and also includes the expenses incurred for completing the title of an Asset. Eg:-Lawyer Fees, interior designing expenses etc.
Adding to the example in FAQ1, suppose if a Tax payer has incurred Rs.5 lakhs for renovating the house then in that case he will get the benefit of the expenditure along with the indexation.
| Particulars | Amount (Rs.) |
| Sale Consideration of the property | 60,00,000 |
Less;- Indexed Cost of Acquisition
40,00,000/280*348
| 49,71,428 |
Less:- Indexed Cost of Improvement 500000/289*348
(Since the Cost Inflation Index for the FY 2019-20 is 289) | 6,02,076 |
| Capital Gains | 4,26,495/- |
And the tax payable would be Rs.85300/- (20% of Rs.426495/-)
4. How would the tax implication be if the property which is sold was acquired out of inheritance or received as gift from others?
Ans:- If the property was acquired out of inheritance or gift or by way of will that mean the taxpayer has not incurred any expenditure for the purpose of any property which will lead to cost of acquisition completely becoming Zero. This will lead to huge tax outflow for the taxpayer. However Income Tax Act has given a relaxation by way of claiming the cost of acquisition paid by the previous years.
For example:- Mr. A has is selling a property of Rs.50 lakhs in November,2023 which was gifted by his father. This property was purchased by his Father in the year 2005 of Rs. 10 lakhs. At the time of calculating Capital gains, Mr. A can take the benefit of cost of purchase price paid by his Father along with the indexation.
5. How would the situation be if the property sold is less than the stamp duty value determined? Would it have any impact on taxation?
Ans:- In the event that the stamp duty value exceeds 110% of the sale value and the sale value is less than the stamp duty value, then amount to be considered as the ‘full value of consideration’ is stamp duty value of the property. For the instance if the selling value of the property is Rs. 50 lakhs however the stamp duty is paid on the value of Rs.62 lakhs (Stamp duty value) then the sale consideration of the property would be Rs.62 lakhs and not Rs.50 lakhs.
6. How can the taxes be saved if there any Gain arises?
Ans:- Tax shall be paid in the situation when Capital gain arises and in order to save paying taxes Taxpayers can look for further Investments in the following assets with the prescribed time limits in order to save as much taxes as possible.
I) New house property
II) New agricultural land
III)Specified Bonds
Iv) Investment in eligible startups.
And there are other types of investments and all exemptions of Investments comes with various terms and conditions along with the defined timelines and shall be require to adhere otherwise the benefit of investments will not be given.
It is suggested to take a help of Professional before initiating any transactions. We are open for comments and suggestions. The above article has been prepared as by Mr. Yash Bagadi (yash.bagadi@abacussolutions.co.in) and reviewed by Mr. Suyash Tripathi (suyash.tripathi@abacussolutions.co.in)