Menu

Real Estate Consultant

TDS on sale of property

TDS Property Sale by Indian Residents

When Indian residents sell their properties in India, TDS is deducted @ 1% if property sale is for more than Rupees 50 Lakh. Sec 194 IA of the Income Tax Act, 1961 states that for all transactions with effect from June 1, 2013, Tax @ 1% should be deducted by the purchaser of the property at the time of making payment of sale consideration. The tax so deducted should be deposited to the Government Account through any of the authorized bank branches.

Points to remember

Purchaser shall deduct tax from the sale consideration.

PAN of the seller, as well as Purchaser, should be mandatorily furnished in the online Form for furnishing information regarding the sale transaction.

There is no online mechanism for rectification of errors. For the purpose of rectification, you are required to contact the Income Tax Department.

The seller shall verify deposit of taxes deducted by the Purchaser in your Form 26AS Annual Tax Statement.

TDS Property Sale by Non-Residents

Non-Residents (NRI) on the other hand do not reside in India, many of them hold foreign citizenship. Once they sell their property in India and capital gains occur, As per rules TDS  is deducted by the buyer when the property is sold in India. If the buyer of NRI property fails to deduct TDS then they may become liable for taxes due on the property they purchased. TDS u/s 195 is deducted to ensure capital gain tax compliance.

If NRI is selling a property in India after holding it for more than 2 years, then TDS is to be deducted at the rate of 20% plus Education Cess and Secondary and Higher Education Cess which works out to the rate of 20.6% on gross transaction value if the sale price is less than 1 Crore. 

In case the sale price is above Rs.1 Crore, the rate of TDS works out to 22.66% including Surcharge, Education Cess and Secondary and Higher Education Cess.

In case holding period is less than 2 years then Short Term Capital Gain Tax will be applicable. For short-term capital gain, TDS applicable is be 33.99%

Options for lower or no TDS deduction for NRIs, when selling their property in India. In case there is a capital loss, then to avoid the buyer from deducting TDS in compliance with the laws of India, NRIs can apply for NIL Tax Deduction Certificate from the Income Tax Department. This should be done before the final sale to the entire sale proceeds are received by the NRI seller.

In a situation where there is a capital gain which is much less than the designated rate of TDS that buyers are obligated to deduct as TDS. NRI sellers can apply for Lower tax Deduction Certificate.

Long-term Capital Gain can be invested in either property or tax-exempt bonds to save long-term capital gain tax. In such cases, NRI can apply for Tax Exemption Certificate from Income Tax Department under section 195 of the income tax act, 1961

If an NRIs total income in India is less than basic exemption limit [currently 2.5 Lakh] then they can apply for TDS waiver with Income Tax officer applicable to their jurisdiction.

G.S.T. on Property Transactions

GST or Goods and Services Tax is an indirect tax which is applicable to the supply of service related to the construction of the building. However, GST is not applicable to completed constructions.

However, GST is not applicable if the whole of the consideration for a property is paid after issuance of completion certificate by a competent authority or after its first occupancy, whichever is earlier.

Hence, if you are purchasing a property from a builder directly and if payments are made to the builder towards the property prior to occupation, GST would be payable on the amount paid. However, if a property is purchased in a secondary transaction from an owner, then GST would not be applicable as the payment is being made after issuance of completion certificate or first occupancy.

GST on Under Construction Property

As per GST law, construction of a complex, building, civil structure intended for sale to a buyer is considered a service and liable for GST – if any consideration is received before issuance of completion certificate.

The GST rate payable on construction services is 18%. However, the effective rate paid on property transaction would be 12%, as GST at the rate of 18% is levied only on 2/3rd of the amount for the property; 1/3rd of the amount is deemed as the value of land or undivided share of land supplied to the buyer and is not taxable under GST.

GST on Completed Flats

In case of purchase of completed flats, GST would not be applicable to the sale. GST is only applicable on payments made to a builder for providing the services of construction. Hence, in case of purchase of a completed or used flat, the question of providing construction service does not arise. Thus, there would be no GST applicable on purchase of completed flats.

A key criterion for determination of the applicability of GST on a property is the issuance of completion certificate by the concerned authority. If completion certificate for a property is obtained before making any payment to the seller, GST will not be applicable as it is considered a ready-to-move-in property and there is no transfer or supply of goods or services.

HOME LOAN

One can avail finance on the properties that have clear titles and market value more than or equal to the agreement value. Many projects these days are pre-approved by leading financial intuitions.
Eligibility to avail a Home Loan for an applicant shall be:

An Indian citizen

Above 21 years at the commencement of the loan

Below 65 / retirement age at the time of maturity

Amount of loan eligibility will be determined by the bank on the basis of factors such as income, age, qualifications, number of dependents, spouse's income, assets, liabilities, stability and continuity of occupation and savings history to ensure easy repayment for you in the future.

The loan eligibility will be subject to the value of property selected by you.
Normally the maximum loan that can be obtained is 80% of the agreement value but it may vary based on many factors.

One can apply for a loan even before the purchase of the property. A loan amount will be sanctioned to you based on the above eligibility criteria. The loan amount will be subject to the value of the property when you select one.
Maximum tenure of the loan is 30 years, subject to eligibility norms. The Bank may ask documents like your income proof like salary slip, bank statement, IT returns etc. apart from Passport size photograph, Identification Proof, Age Proof, Details & proof of assets held etc.

The security for the loan is a first mortgage of the property to be financed, normally by way of deposit of title deeds and/or such other collateral security as may be necessary. The title to the property should be clear, marketable and free from any encumbrances.

Power of Attorney (POA) in Property deals in Maharashtra 

A POA is a legal document by which one person (donor-principal) gives another person (the attorney-agent) authority to act on his behalf and in his name. Every act performed by the attorney within the authority of the POA is legally binding on the person granting it. It may be pointed out that a POA is not an instrument of transfer with regard to any right, title or interest in an immovable property. Even an irrevocable POA does not have the effect of transferring title to the grantee. An attorney holder may, however, execute a deed of conveyance in the exercise of the power granted under the POA and convey title on behalf of the grantor.

The property can be sold only through registered POA. The Registration (Maharashtra Amendment) Act, 2010, effective from 1 April 2013, has resulted in the amendment of section 17 of the Registration Act, 1908, in its application to the State of Maharashtra. As per these amendments, an irrevocable POA relating to the transfer of immovable property in any way, executed on and after the commencement of the Registration (Maharashtra Amendment) Act, 2010, shall be compulsorily registrable. Thus, any POA granted to a person for sale of the immovable property will have to be registered with the applicable sub-registrar of assurances, failing which it cannot be put to use.

Further, it is advisable to mention the details of the property in respect of which the POA is to be utilized.

According to article 48 of the Maharashtra Stamp Act, the stamp duty payable on a POA, not being a proxy, when authorizing to sell or transfer immovable property, without consideration or without showing any consideration as the case may be, if given to the father, mother, brother, sister, wife, husband, daughter, son, grandson, grand-daughter or father, mother, brother or sister of the spouse, shall be Rs.500.

If it is executed in favor of a person other than a close relative, authorizing her to sell or transfer the immovable property, The stamp duty payable is the same as that on the sale of the property. However, when a person himself executes the transfer documents and gives limited power to admit execution before the sub-registrar, In such cases stamp duty payable shall be Rs. 500/- only.

For NRI POA can be executed before the Indian consulate in a foreign country and sent for stamping here.

However, for leave & license, notarized POA can be used.

Even while purchasing a property notarized POA to a blood relative can be used.