Taxes payable by seller / buyer on resale property

Q: Dear Sirs,
Suppose I sell a residential flat in 2013 for Rs 1.62 cr approx. (going market rate) which was purchased in 1985 - 1986 for Rs 2.55 lacs:
1) What is the VAT / Service tax / TDS tax / any other tax me / buyer will have to bear / pay (if any)? It seems some new rule is come into effect from June 01, 2013 regarding service tax. I request clarification.
2) What is the long term capital gain tax I have to pay on sale of the flat?

Likewise, if I invest the proceeds of sale in part or full in purchase of residential flat (new / resale) what will be my tax outgo (VAT / Service tax / TDS tax etc)

Thanks,

Shivakumar R Sharma
email:shivakumar_sharma@yahoo.co.in

Shivakumar, Apartment Resident, Mumbai

11th June 2013

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Replies (7)

i all,
To give buyers relief, the government has allowed income tax deductions if the property is bought on a loan. Under Section 80C, the borrower can claim deduction of up to Rs 1.5 lakh. For a self-occupied property, a Rs 2 lakh benefit is available under Section 24 (b) of the Income Tax Act for interest on the home loan. If the property is not self-occupied, the entire interest paid to the lender can be deducted from income.

Jerome Fernandez, Mumbai

3rd June 2016

Comment

Good evening Jerome!!!
You are absolutely right. But how can a buyer claim his/her tax amount if the project is delay? The current market conditions, project delays are a common thing. This can cause financial trouble to the borrower. A person can't claim deduction for the interest if his or her house is still under construction. A buyer can, however, get benefit for the principal amount. On possession, the borrower can claim deduction for the interest paid during the pre-construction period.

Sashidharan,

3rd June 2016

Hi,
Service tax is payable only on property purchase directly from builders and is not required in case of resale property purchase as there is no service provided. Parking charges are exempted from the service tax ambit.

Kishore Pathak, Mumbai

14th July 2015

Comment

Right Kishore,
VAT and Service Tax are not applicable for constructed property. It is only applicable for under construction flat. Secondly, VAT may vary from state to state as it is state subject but service tax is uniform across country i.e. 12.36% as it is fixed by Govt of India.

Shreya Agarwal, Mumbai

14th July 2015

@Shantanu,
The ready reckoner rates not only affect the buyer and seller but also the property owner. Municipal corporations calculate property tax on the basis of the rates published by the government. If these go up, consequently your property tax will also rise when a local body revises taxes.

Shreya Agarwal, Mumbai

24th June 2015

Comment

Hi everybody,
In January 1st'2015, the latest ready reckoner rate hike in Maharashtra - 14% on an average - by the state government is the lowest of recent years. the hike for Mumbai (municipal corporation area) is an average of 14.81%.

Arup rajan, Mumbai

15th May 2015

Comment

I now that lot's of people not aware about the Ready Reckoner Rate. It is the base rate of property that determines stamp duty and registration charge collected by the government in the course of a property transaction. As per the latest information, stamp duty is 5% of the ready reckoner or market rate, whichever is higher, registration charge is likely to be 1% of the total value of a property from this year onwards. Till now, registration charge was fixed at Rs 25000 per transaction on residential properties.

Shantanu Kumar, Mumbai

15th May 2015

But at the same time good news for those who already have flats and may go in for redevelopment. For alternative accommodation e.g. those going for redevelopment the fees shall be calculated for the extra space the owner gets, and not on the existing space he owns.

Arup rajan, Mumbai

15th May 2015

VAT and service tax is only paid for under construction apartment. Service Tax is 3.09% of Total Cost(means 12.36% of 25% of total cost) and VAT is 5.5% of total cost = 8.59% of total cost.
For a resale property ine does not have to pay service tax and VAT

Anuj Gupta, Mumbai

12th June 2013

Comment

Dear Anuj Gupta - Thanks. What about TDS tax? Has some new tax come into effect since June 01, 2013

Shivakumar, Apartment Resident, Mumbai

12th June 2013

The new provision calls for TDS to rollback at 1% of the amount given by the buyer of immovable property, regardless of the capital gains. The rate of TDS turns 20% if a particular seller lacks the Permanent Account Number. The property in question can be land, apartment or buildings, however, deduction is not enforceable on agricultural land that is not positioned within municipal limits.

Priotosh D , Bangalore

3rd November 2014

People often have many doubts regarding TDS (Tax deduction at source) and its related concepts. As the name depicts, TDS is just an indirect mode to collect tax from the tax payer or deductor by the income tax department. In order to avoid tax evasion, Income Tax Act has introduced the provision (TDS) to collect tax.
A certain amount of percentage is deducted by a person at the time of making or crediting specific nature of payment to the other person. In one line, the concept of TDS works on the principle of “pay as you earn”.

Deepankar Godbole, Mumbai

3rd November 2014

Hi , you can save your tax by investing the capital gains in the Real estate and the capital gain bonds.

Jerome Fernandez, Mumbai

11th June 2013

Comment

Investment in real estate: You can claim tax exemption under Section 54 on the long-term capital gain on sale of a property. If you buy a house within two years or construct a house within three years with all the profit made of sale, then you can avail tax exemption.

You can avail tax exemption if you had bought a second house within a year before selling the first house.
Further, you can avail tax exemption under Section 54 (F), too. For this, you need to own not more than one house and invest sale proceeds from assets other than a house in real estate. Real estate investment in India must be made in residential properties, not in commercial properties or vacant plot, in order to avail tax exemption.

Jerome Fernandez, Mumbai

11th June 2013

Investment in capital gain bonds:

You can avail tax exemption on sale of a house if the profit is invested in either bonds of the National Highways Authority of India and Rural Electrification Corporation Limited for three years. The investment has to take place within six months of realising the profit, i.e. selling the house. However, investment is allowed only up to Rs 50 lakh in a financial year. Usually the interest on these bonds is around 5-5.5%.

Hence, few factors should always be kept in mind when you are going to buy or sell a property. While making profit by selling a house, you need to know which tax bracket you fall under when calculating capital gains tax and also whether or not indexation can save tax payable for you.

Jerome Fernandez, Mumbai

11th June 2013

http://www.commonfloor.com/guide/how-to-save-capital-gains-tax-while-selling-a-house-23230.html

Jerome Fernandez, Mumbai

11th June 2013

What about part 1 of the Question?

Shivakumar, Apartment Resident, Mumbai

11th June 2013

Hi your capital gain will be around Rs. 1crore and 60 lakh. The tax you will have to pay on the capital gain will be around Rs. 32 lakh. Please consult a CA and take his advice also.

Priyanka Vats, Pune

11th June 2013

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