Property Investment Uncategorized

Why Homebuyers Should Be Careful about Compliance with Tax Laws

compliance with tax laws

Buying a home requires various due diligence. That is why Dr. Sumit Chatterjee chose to deal with a reputed large organization while buying an apartment.

Dr. Sumit Chatterjee recently shifted to South Kolkata after he joined one of the premier hospitals near EM Bypass. He was also planning to boost his private practice.

It was quite difficult for him from his home in North Kolkata. Daily commuting to his hospital and chamber was time-consuming and irritating.

He decided to rent a flat near his hospital and started living there with his wife and son.

His wife was keen on having their own home as soon as possible. So, Dr. Chatterjee considered buying a resell flat so that possession was immediate.

However, one of his patients who is a tax consultant advised him to consult only well-established real estate marketing companies and he decided to listen to him.

Why Should You Buy a Pre-owned Flat?

There are several benefits of buying a resale property. Some of them are:

  • Considerable savings on GST

No GST is payable in the case of flats that have already received the completion certificate (CC). Considering that the GST is charged at 5% and as much as 18% on some additions, there are substantial savings.

Considering that the GST is charged at 5% and as much as 18% on some additions, the savings is substantial.

  • Ready Infrastructure

If you buy a resale flat, you are never an early resident waiting for the infrastructure to catch up. The infrastructure is already up and running.

  • Start Living Immediately

You can start living immediately on possession and avail of all the amenities in a resale property. There is also no fear of delay in handover.

  • Manage Your Finances Well

You don’t have to pay rent and installments at the same time.

  • No Construction Defects

In a resale flat, construction defects have been already identified and repaired. No fear of unpleasant surprises.

However, you should be extra careful while buying a resale flat. Thorough due diligence is important, as also compliance with all relevant laws, especially tax laws.

Compliance with Tax Laws is Essential

However, you should be very careful while buying a resale property. It is advisable to take the help of professional companies like Home Storeys from the house of NK Realtors.

If you fail to meet critical compliance requirements while buying a property, you can be penalized with a hefty amount.

Let us look at a particular tax issue where non-compliance can invite huge penalties.

It is essential that both the buyer and seller must have their PAN linked with Aadhaar numbers. Otherwise, PAN will get deactivated.


As per the rule, the buyer should pay 99% of the total consideration to the seller and deposit 1% of the purchase consideration to the government treasury as TDS. This is applicable to any property valued at Rs 50 lakh and more.

PAN of both the buyer and seller must be active during this process.

Massive Penalty for Non-Compliance

In case of negligence, the Income Tax Department can penalize the buyer with as much as 20% of the property value instead of only 1%.

It is the responsibility of the property buyer to check that the PAN of both the seller and the buyer is active.

As per media reports, quite a few such cases have taken place when the buyer received considerable tax demand notices from the Income Tax Department.

Navigate Tax Laws While Selling Your Property

Apart from the above example, there are some other tax rules related to property transactions.

For example, when you sell a property your capital gain is taxed.

Let’s see how it works and how you can offset the tax incidence partly or fully.

Short-term Capital Gains

If a property is sold within 24 months of acquiring it, then the profit will be termed as STCG.

Short-term capital gains are taxed as per the income tax slab rates applicable to the individual.

Gain/loss from the sale of the asset is calculated by deducting the purchase cost, expenses incurred for improvement of the asset, and expenditure incurred exclusively in asset sale from the sale proceeds of the asset.

Long-term Capital Gains

Long-term capital gains are taxed at the rate of 20.8% (rate including health and education cess @ 4%) with indexation. Indexation is a technique to adjust the asset’s cost according to the inflation index. It will increase your cost and reduce your gains and thereby, tax liability.

Long-term capital gains are calculated in the same way as short-term capital gains, but the purchase cost and cost of improvement are replaced with the indexed cost of acquisition and indexed cost of the improvement.

You can save capital gains tax in various ways when you sell a property.

Contact Home Storeys from the house of NK Realtors if you want a personalized consultation on saving tax while selling a property.

Leave a Comment

Your email address will not be published.

You may also like