Selling your property in Bangalore, the heart of India's real estate market, can be an exciting milestone in your life.
Understanding the tax implications of property transactions before putting up a “For Sale” sign is essential.
Let's explore the tax implications of selling property and clarify the role of real estate agents.
Understanding Property Sale Tax in India
When selling property in India, you should know the two central taxes: Capital Gains Tax and Goods and Services Tax (GST).
Capital Gains Tax:
Capital Gains tax is levied on the profit earned from property sales. It is categorized into two categories:
- Short-term Capital Gains (STCG): If you sell a property within two years of acquiring it, the profit is considered a short-term capital gain. STCG is taxed according to your income tax slab, ranging from 5% to 30%.
- Long-term Capital Gains (LTCG): If you hold a property for more than two years before selling it, the profit qualifies as a long-term capital gain. It is taxed at 20% with indexation benefits.
Goods and Services Tax (GST):
GST applies to selling under-construction properties and is generally 5% for residential properties. GST rates can vary depending on property value and developer incentives. GST is not applicable on ready-to-move-in property.
Role of Real Estate Agents in Bangalore
Now that we have a basic understanding of tax on selling property in India, real estate agents in Bangalore are spotlighted. Experienced real estate agents have their fingers on the pulse of the property market.
Real estate agents provide valuable insights into the current trends, helping you set the right price for your property. They have an extensive marketing network and knowledge of competitive property selling. Property agents in Bangalore are also well-versed in property laws.
Real estate agents possess in-depth knowledge of the relevant laws, providing a distinct advantage regarding tax savings. They adeptly lead you through the intricate documentation process, guaranteeing full compliance with all legal prerequisites.
Right Time to Sell Property
The real estate market, like any other, experiences fluctuations. Now that you understand the tax implications, you might wonder when is the best time to sell your property.
Keep an eye out for the current state of the real estate market in Bangalore. If the demand is high and property prices appreciate, it might be an opportune time to sell.
Tax implications play a vital role in deciding the right time to sell. Consult with a real estate agent who is well-versed in current tax laws. They can help you strategize the timing of your property.
Keep regular updates on the prevailing interest rates. Low-interest rates can make property purchases more attractive, potentially increasing demand. Selling when interest rates are low might attract more buyers to your listing.
How to Save Tax?
Tax on capital gains is activated when an individual disposes of a capital asset, including property, land, building, etc., resulting in a profit. In the case of property sales, the seller is obligated to settle income tax dues arising from the capital gains. Even though the seller can't claim standard deductions, other ways exist to save tax on income from capital gains.
Investing in another property
Any taxpayer can claim an exemption under section 54 if capital gains are derived from the sale or transfer of a house. The exemption can be claimed if the sale of property results in LTCG. To claim tax exemption, the new property must be purchased within one year before or two years after the sale of the old house property. In case of construction, the new property must be constructed within three years of the purchase of the old property.
Investing in Bonds
Section 54EC allows individuals to seek a tax exemption for long-term capital gains from selling any property. They must invest in bonds notified by the government to claim such exemptions. To claim such exemption, investment in specified bonds must be made within six months from the date of transfer of such property.
Investing in a Company
Section 54G provides tax exemption from selling house property to individual taxpayers on LTCG. You can claim a tax exemption if the net sale proceeds from the property sale are invested in equity shares of a qualifying specified company. Further, the company must utilize the money to purchase some inventory, such as machinery, a particular plant, etc., within one year. The investment must be made on or before the due date of tax return filing.
Tax Deductions on Home Loans
When selling a property in Bangalore, it's also essential to understand the tax deductions available on home loans. If you took a home loan to purchase the property, you could claim deductions on the principal and interest components. Under Section 80C, homeowners can claim a deduction of up to INR 1.5 lakh on the principal repayment. Additionally, under Section 24B, a deduction of up to INR 2 lakh can be claimed on the interest paid on the home loan for a self-occupied property. These deductions can significantly reduce the tax liability arising from the sale of the property.
Impact of Joint Ownership on Taxation
Joint ownership of property in Bangalore can also influence the tax implications. If a property is jointly owned, the capital gains from the sale are divided among the co-owners based on their share in the property. Each co-owner can then avail of the tax benefits and exemptions individually. This can be a strategic move, especially if one of the co-owners falls under a lower income tax slab or if they can invest their share of the capital gains in avenues that offer tax exemptions.
Role of Property Valuers in Tax Calculation
While real estate agents play a crucial role in the selling process, property valuers are equally important when determining the accurate market value of the property. An official valuation can help ascertain the correct capital gains from the sale. This is especially relevant if there's a significant difference between the sale price and the government's circle rate. A valuation report from a registered valuer can justify the sale price and prevent additional tax implications.
Digital Platforms and Tax Implications
In the age of digitalization, many property transactions in Bangalore are initiated online. These platforms help list and market the property and provide tools and calculators to estimate potential capital gains and tax liabilities. Sellers should leverage these digital tools to understand their tax obligations before consulting with professionals.
Tax Exemptions for Senior Citizens
Senior citizens selling property in Bangalore can avail of certain additional tax benefits. The threshold limit for not deducting tax at source (TDS) on property sales for senior citizens is higher than other sellers. Moreover, they also enjoy a higher basic exemption limit, which can reduce their overall tax liability on capital gains.
Understanding all the factors to consider for tax savings when selling property can be pretty complex. When navigating the intricate world of real estate, consulting with an experienced Real Estate Agents in Bangalore can provide invaluable insight and help achieve your financial and real estate goals.