ARE THERE INCOME TAX CONSIDERATIONS WHILE TRANSFERRING NEWLY ACQUIRED PROPERTY?

Buying or transferring property is a significant aspect for many people. Investing in a house is not only a necessity for a person, but it is also one of the crucial tax-saving avenues. If it is well channeled, it can reduce the tax burden and bring in tax efficiency.

We have provided an overview of tax implications on the sale or purchase of residential house property. Look at the terms and other details of the tax considerations while transferring a newly acquired property.

A person can sell his residential house property to construct a new house or get a new property. Check the points below.

1. Construct new house property

In this case, an individual may be selling his residential property to construct or purchase a new residential property. The individual might have started building or buying, or selling his property to pay back the dues.

2. Shift his residence from one place to another

The owner is selling the property to buy another property in the new place where he is shifting.

In the above cases, the transaction is called the transfer of capital assets and requires the pay income tax.

3. Chargeability of income from house property

As per section 22 of the IT Act 1962 (Income Tax Act), one of the primary conditions for charging income tax on income from house property is that assessor should be the property owner.

If, in any case, the assessor has one or more residential properties and buys another residential property, then the benefits of Nil Annual Value are claimed only in respect of one property. All the other remaining house properties will be taxed on a deemed basis.

Under DTC 2010 (Direct Tax Code), only the actual rent received from house property is proposed to be taxed. The present system of taxing notional value, i.e., Annual Value, is proposed.

4. Tax implications on sale of residential property.

There will be capital gains tax implications on the transfer of a house property. An asset is a long-term capital asset if the purchase is held for more than 36 months else a short-term capital asset.

Under the IT Act, a long-term capital gain is taxable at 20% plus education cess, and short-term capital gains are taxable according to the standard rates.

In case the sale consideration is less than the stamp duty valuation as prescribed under section 50C, the stamp duty value shall be deemed the total amount of the concern.

No distinction is made under DTC between long-term capital gain and short-term capital gain. You can avail of indexation benefits at any time after one year from the end of the financial year in which a person owns the assets. No special rates are given for capital gains, and the capital gains are taxable at a regular rate subject to indexation benefits.

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5. Find about the availability of tax benefits on the purchase of house property.

The loans are taken from the financial sector to get a house property. Under the IT Act, interest payable on a loan for house construction is allowed to deduce if the structure is completed within three years from the end of the financial year in which the loan amount was borrowed. In the case of a joint home loan, the co-owners can separately claim the benefit of deduction of interest on loan amount subject to a maximum limit of 150,000 and satisfying other essential conditions.

The repayment of the loan and stamp duty paid on the purchase of property shall be allowed as a deduction under section 80C of the IT Act.

Transfers property concerning which the deduction is claimed under section 80C before five years from the end of the financial year in which the possession is obtained. In that case, no deduction will be allowed in the previous year in which house property is transferred. The aggregate deductions permitted in the past years shall be deemed to the asset's income for the last year in which house property is transferred.

6. About Implications on Wealth Tax Act, 1957.

Want to know the Wealth Tax Act, 1957 implications? Read below

Wealth Tax is chargeable in a person's hand regarding assets specified under the Wealth Tax Act 1957. One of the assets covered is a residential house property. One house or a part of the house belonging to a person is exempt without any monetary ceiling under section 5(vi) of the Wealth Tax Act, 1957.

Under DTC, the threshold limit for wealth tax has been proposed at net wealth exceeding 1 Crore, and it is chargeable at a rate of 1%.

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Author: Amanpreet Kaur