Library / Income-tax Act, 2025: The Professional's Master Guide

13. Property Transactions: A Practical Guide

Property transactions involve many provisions across the Act. This chapter puts them together for individuals who buy, sell, rent or develop residential property.

13.1 When buying

Point

Rule

TDS

1% on consideration (or stamp value if higher) of Rs. 50 lakh or more, through Form 141; for NRI sellers, TDS under section 393(2) at capital gains rates

Buying below stamp value

Difference above the higher of Rs. 50,000 and 10% of consideration taxable as other income (section 92); becomes part of cost

Payment mode

Cash receipts of Rs. 20,000 or more for property transactions attract penalty on the recipient; pay through banks

Home loan

Interest under section 22 (house property), principal under section 123 (old regime); self-occupied interest only in the old regime

Joint ownership

Each owner claims deductions in proportion to share and actual contribution

Reporting

Registrar reports purchases of Rs. 30 lakh or more to the department; these appear in AIS

13.2 When renting out

  • Rent is taxed under house property with the 30% standard deduction and interest.
  • Tenants paying more than Rs. 50,000 a month deduct TDS at 2% (individuals not under audit) or 10% (others).
  • Advance rent and security deposit: advance rent is income when due or received as per method; refundable deposits are not income.
  • Letting through a furnished or serviced arrangement may be business income; composite rent rules apply.

13.3 When selling

Step

What to do

1

Determine holding period (24 months for long-term) and whether the property was inherited or gifted (previous owner's cost and period)

2

Compute sale value; compare stamp value with the 110% tolerance under section 78

3

Compute cost, including improvements with proof, and FMV on 1 April 2001 if acquired earlier (capped at stamp value)

4

For pre-23 July 2024 acquisitions, compare 12.5% without indexation with 20% with indexation

5

Plan reinvestment under section 82 (house), 85 (bonds, within 6 months) or deposit in Capital Gains Accounts Scheme before the return due date

6

For NRI sellers, obtain a lower deduction certificate and arrange Forms 145 and 146 for repatriation

7

Report in the return (ITR-2 or ITR-3) with property details and exemptions

Illustration 77: Selling and buying in the same year

Sudhir sells his flat (bought in 2019 for Rs. 60 lakh) for Rs. 1 crore in June 2026 and buys a bigger flat for Rs. 1.4 crore in October 2026, taking a loan of Rs. 50 lakh.

LTCG = Rs. 40 lakh (acquired after 2001 but before July 2024, so compare with indexation: with CII of 289 for 2019-20 and an assumed 390 for 2026-27, indexed cost = Rs. 80.97 lakh, LTCG = Rs. 19.03 lakh).

Under section 82, the new flat cost exceeds the gain under either method, so the entire gain is exempt. The loan does not matter, as the exemption depends on the investment in the new house, not the source of funds.

He must hold the new flat for 3 years. He can claim home loan interest on the new flat (old regime for self-occupied, or both regimes if let out).

13.4 Joint development and redevelopment

Where a housing society building is redeveloped and members receive new flats (and sometimes cash) in exchange for their old flats, the transaction is often treated as a transfer. Courts and tribunals have held that the new flat can be treated as a reinvestment eligible under section 82, and that the holding period of the old flat may be relevant. Cash compensation for hardship or rent during construction has been treated differently in different rulings. Each redevelopment agreement must be read carefully; advise members to keep the agreement, allotment letters and possession letters.

Chapter summary

• Buyers: TDS, stamp value difference under section 92, bank payments.

• Sellers: section 78, indexation option, reinvestment under sections 82 and 85, NRI withholding.

• Redevelopment agreements need careful reading for exemption and timing.

PART C: TOTAL INCOME, TAX LIABILITY AND SPECIAL ENTITIES

Clubbing, losses, deductions, rates, regimes, HUFs, firms and non-profit organisations

After computing income under each head, the next steps are clubbing, set off of losses, deductions and computation of tax. This part covers those steps, compares the old and new regimes in depth, discusses lawful tax planning, and then explains the taxation of HUFs, firms, AOPs, non-profit organisations and co-operative societies.

© Vipin Nair. This guide is for reading online only. Copying, downloading, printing and redistribution are not permitted. For study and general reference; not legal, tax or investment advice.